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LIBRARY OF CONGRESS. 



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UNITED STATES OF AMERICA. 



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ELEMENTARY 



POLITICAL ECONOMY 



BY 



A. B. MESERVEY, Ph.D. 

PRINCIPAL OF NEW HAMPTON LITERARY INSTITUTION, NEW 

HAMPTON, N. H. : AUTHOR OF A TREATISE 

ON BOOK-KEEPING 





BOSTON 
THOMPSON, BROWN & CO., PUBLISHERS 



NO. 23 HAWLEY STREET 



\ 



4'^ 



Copyright, 
By a. B. Meservey, 

1885. 



Electrotyped by 
C. J. Peters & Son, Boston. 



PREFACE. 



Of all the sciences Political Economy is one of 
the most important. It is the foundation of public 
and private prosperity. Hence, every person who 
is to be a citizen of this Republic should have a 
good knowledge of the elementary principles of 
Political Economy. It should be one of the pre- 
scribed studies in the public schools, but it has 
seldom been taught outside of colleges and the 
higher seminaries. It has always been considered 
a most intricate subject, and hence to be attempted 
only at the close of a long course of study ; but it 
does not seem possible that a science of such 
importance can be too difficult for common people 
to understand. 

May it not be that the trouble is with the text- 
books rather than the subject ? 

The old treatises are full of statistics, discus- 
sions, theories, opinions, hypotheses, and argu- 
ments ; but these are worse than useless in a text- 
book of elementary principles. It seems, therefore, 
that there is need of a work on Political Economy 
which shall be elementary, plain, simple, easy ; 

iii 



IV PREFACE. 

and which can be comprehended by pupils of 
average ability. 

The author has endeavored to supply this de- 
mand in the following pages. He has presented 
conclusions rather than discussions, facts rather 
than theories, principles rather than hypotheses. 
In regard to disputed questions — like the tariff — 
reasons pro and con have been given, and the 
learner left to form his own opinions. 

The author claims no originality. He has 
simply compiled, from sources considered reliable, 
a text-book which he trusts will prove a welcome 
assistant to teachers, and a help to students. He 
has tried it in the class-room, and is satisfied that 
it is not too difficult for comprehension by students 
of ordinary capacity. 

The author would also take this occasion to 
thank those who have given so hearty a welcome 
to his " Book-keeping," and would express the hope 
that their opinion may be as favorable in regard to 
the following pages. 



CONTENTS. 

; 

INTRODUCTION. 

Definitions. Political economy. Difference between political econ- 
omy and politics explained. Intrinsic value. Commercial 
value. Illustration of the difference between the last two terms. 
Money. Worth. Cost. Price. Wealth. Labor. Capital — 
quick, permanent, productive, unproductive. Capitalist . . . 1-4 

CHAPTER I. 

WEALTH OF SAVAGES. 

Labor necessary to produce wealth. Among savages consumption 

rapidly follows production. Hence they possess very little wealth, 5-6 

CHAPTER II. 

WEALTH OF SHEPHERD TRIBES. 

Hunger teaches the savage a useful lesson. He abandons his mode 
of living and becomes a shepherd. His food the flesh of the 
domestic animal. He has no permanent home. His wealth not 
abundant 6-8 

CHAPTER III. 

WEALTH OF AGRICULTURISTS. 

A nomadic life does not satisfy. Men become tired of shepherd life. 
They build houses and barns. They become farmers. The third 
stage of civilization 8-9 



VI POLITICAL ECONOMY. 

CHAPTER IV. 

DIVISION OF LABOR. 

Labor the prime element of wealth. Among savages there is little 
division of labor. But men have special aptitudes. Farmers. 
Tailors. Carpenters. Shoemakers. Division of labor increases 
with the increase of population 9-12 

CHAPTER V. 

Substitutes for human labor. Domestic Animals. Wind. Water. 

Sfeam. Electricity 12-16 

CHAPTER VI. 

MACHINERY. 

To apply manual labor, the tools and implements are simple. But 
the employment of other powers necessitates more elaborate 
machinery. Bridle. Saddle. Steam Engine. Telegraph. 
Telephone. Machinery increases production ...... 16-19 

CHAPTER VIL 

CAPITAL. 

Capital of Indian, Of fisherman. Of farmer. Wealth and capital 

not synonymous terms 19-20 

CHAPTER VIII. 

INCREASE OF CAPITAL. 

Circumstances which tend to promote the increase of capital. Loca- 
tion. Nature of the soil. Climate. Character of the inhabi- 
tants. Nature of the government , 20-24 

CHAPTER IX. 

TRADE, 

Direct trade. Markets. Traders. Exports. Imports. Duties, 

Tariff. Specific duties. Ad valorem duties. Restriction in trade, 24-27 



CONTENTS. Vll 

CHAPTER X. 
FREE TRADE. 

Theory of free trade. Bible arguments. Answer. Direct taxation. 
Reply. Argument from benevolence. Answer '8-32 

CHAPTER XI. 
TARIFF FOR REVENUE. 

Governments are essential. Taxation of some kind necessary. 
Tariff. Difficulties. Tax on all imports. Reply. Tax luxuries. 
Tax vices. Answer. Difficulties 3^ 34 

CHAPTER XII. 
PROTECTION. 

Theory. Illustration from cotton cloth. Difficulties in the applica- 
tion of the theory. Iron. Lumber. Sugar. Protection leads to 
over-production and finally to stagnation 34-39 

CHAPTER XIII. 

MODIFIED PROTECTION. 

In a new territory there may be need of protection. But there should 
be gradual reduction. There may be a time in a nation's history 
when absolute free trade may be the best policy 39-4 ^ 

CHAPTER XIV. . 

MONEY. 

Definition. Substances used for money. Money must have certain 
qualities. It must be imperishable. It must be divisible without 
loss. It must contain great value in small bulk. Its supply 
should be as uniform as possible. Gold and silver are best 
adapted for money 4^-44 



VIU POLITICAL ECONOMY. 

CHAPTER XV. 

COINAGE OF MONEY. 

Lydians. Romans. Coins. Change of the value of coins. Illus- 
tration by yard-stick. Change of the standard of value defrauds 
the debtor or creditor • , 45-48 

CHAPTER XVI. 

The dollar, or the unit of value. Shall the unit be silver ? Shall it 
be gold? Shall there be a double standard ? Answer. Discovery 
of gold in California. Of silver in Nevada. There should be a 
readjustment of the ratio betv\^een the value of gold and silver. 
Seigniorage , , 48-52 

CHAPTER XVn. 

BANKS. 

Four kinds of banks. History of banks. Bank of Venice. Bank 

of Barcelona. Bank of Genoa. Bank of England . . . 52-56 

CHAPTER XVIII. 

BANKS OF THE UNITED STATES. 

Bank of North America. Bank of the United States. Second 

Bank of the United States 56-60 

CHAPTER XIX. 

STATE BANKS. 

Objections to State banks. No uniformity. Want of supervision. 
Uncertainty of redemption. Failures. Panics. Inflation. Sus- 
pension of specie payment. Reorganization under the National 
Banking Act 60-66 

CHAPTER XX. 

SAVINGS BANKS. 

Why organized. When organized. State institutions. Deposits. 

Dividends. Managers. Post-office savings banks .... 66-6g 



CONTENTS. IX 

CHAPTER XXI. 

UNITED STATES NATIONAL BANKS. 

Corporate powers. Organization. Capital stock. Directors. De^ 
posit of bonds. Legal tenders. Redemption of notes. Destruc- 
tion of notes. Loans. Statements. Taxes. National deposito- 



70-78 



CHAPTER XXII. 

TREASURY NOTES. 

Greenbacks. Temporary loans. Should be redeemed and destroyed. 

Elements of danger 78-82 

CHAPTER XXIII. 

EXCHANGE. 

Specie. Bank notes. Treasury notes. Book accounts. Promissory 
notes. Checks. Certified checks. Certificates of deposit. Cash- 
ier's drafts. Drafts 83-89 

CHAPTER XXIV. 

RENT. 

Betterments. Difference in the productiveness of the soil. Differ- 
ence of location 89-93 

CHAPTER XXV. 

INTEREST. 

Formerly the receiving of interest was considered immoral. It was 

illegal. Right and reasonable. Banks as loan agents ... 93 -96 

CHAPTER XXVI. 

TAXATION. 

Reasons for taxation. Direct taxation. Indirect. Excise. Cus- 
toms duties. Internal revenue .... 96-101 



X POLITICAL ECONOMY. 

CHAPTER XXVII. 

PROFIT. 

Profit distinguished from rent. From interest. From wages. Gross 

and net profit. Amount of profit 102-106 

CHAPTER XXVIII. 

DISTRIBUTION OF PROFITS. 

One party. Joint interests. Manufactory. Adjustment of losses. 

Rules for distribution. Old World 106-110 

CHAPTER XXIX. 

JOINT LABOR ASSOCIATIONS. 

Capital and labor. Corporations. Failures. Poor managers. 

Losses 110-113 

CHAPTER XXX. 

INCOME FROM CAPITAL. 
Reasonable interest on investment. Computed on real value. New 

method. Bad in theory and worse in practice .... 11 3-1 16 

CHAPTER XXXI. 

THE BUSINESS MANAGER. 

Third element in every business enterprise. Illustrations. Who 
should receive the net profit ? Why? Corporations . . 11 7-1 19 

CHAPTER XXXII. 

LABOR. 

Price of labor constantly changing. Cost of living. Kind of ser- 
vice. Value of the currency. Demand and supply. Wages of 
women. Amount of net gain 11 9-1 24 



CONTENTS. XI 

CHAPTER XXXI 11. 

LABOR DIFFICULTIES. 

Corporations necessary. They must have special privileges. The 
government should see that their powers are properly exer- 
cised. There should be a labor commission. Also a court of 
arbitration, with final jurisdiction 124-125 



INTRODUCTION. 



Definitions. 

Political Economy is the science of values. 
It treats of the production^ distribution, exchange, 
and consumption of wealth. Political Economy 
should not be confounded with Politics. The two 
terms have essentially different meanings ; and 
yet the distinction between them is seldom clearly 
apprehended by the popular mind. Politics is the 
science of government. It treats of the relations 
and duties of the people and their rulers ; and 
teaches how the privileges and rights of citizens 
may be protected and preserved. 

Political Economy has no reference to form of 
government, choice of rulers, enactment of laws, 
administration of national affairs, liberties of the 
people, or character of rulers ; only so far as these 
things have an influence on the wealth and pros- 
perity of citizens. They are kindred sciences, 
intimately connected,' but occupying distinct prov- 
inces. Political Economy has reference to the 
wealth and prosperity of the people. Politics 
concerns the people themselves. 



2 political economy. 

Value. 

Vahie is of two kinds, intrinsic and commer- 
cial. Intrinsic Value is the worth of an object as 
indicated by its utility. 

Commejxial Value is the worth of an object as 
indicated by its power in exchanges. 

Frequently these two kinds of value are essen- 
tially different. For instance, the intrinsic value 
of air is inestimable, while its commercial value is 
nothing. Its presence is universal, hence there 
can be no motive for wishing to obtain it in 
exchange for any other commodity. The want of 
it alone can demonstrate its intrinsic value. 

Water, like air, is absolutely indispensable, but 
it can have no commercial value unless it is pro- 
duced by some local scarcity. Even then it 
becomes valuable commercially simply on account 
of the labor necessary to obtain it under the 
peculiar circumstances. Thus, we perceive that 
the most useful things are not always the most 
valuable in the market. The term intrinsic value 
is frequently designated titility in treatises on 
Political Economy. The term value is then re- 
stricted to commercial value. It will be so under- 
stood in this treatise when not otherwise stated. 

Money is an authoritative standard of estimating 
value, and is employed as a medium of exchange. 

Worth is the real value of a thing. 

Cost is the value as indicated by the amount of 



INTRODUCTION. 3 

labor necessary to produce a commodity, or the 
amount of money required to purchase it. 

Price is the amount of money at which an article 
is valued by the seller. 

Wealth. 

Wealth consists of all exchangeable commodities 
and conveniences designed to supply human needs, 
satisfy human wants, or gratify human desires. 

It is evident that an object must possess ex- 
changeable value in order to become an element 
of wealth. An object may be useful in the 
highest degree, and still not constitute wealth. 
Air and sunlight are absolutely indispensable, but 
they are not elements of wealth, because they 
have no exchange value. No one wishes to pur- 
chase them, for a sufficiency may be obtained 
without price. A man may possess an abundance 
of these things, and not be wealthy, for he cannot 
exchange them for any other commodity. 

It is also evident that an object must be adapted 
to meet the needs, wants, or desires of mankind, 
or it will not be considered an element of wealth ; 
there will be no demand for it ; men will not laboif 
to obtain it. 

Labor is the voluntary effort of a human being 
designed to accomplish some useful purpose. It 
is the prime element of wealth. Without labor 
there would be no wealth ; without the desire foi' 
wealth there would be no labor. Men will not 



4 POLITICAL ECONOMY. 

labor to secure what they do not want ; they do 
not care to retain what they do not desire. 

Capital is that part of wealth which is employed 
in the production of wealth. 

Capital is either quick or permanent. 

Quick capital is that which is perishable or 
rapidly consumed in the production of wealth. 

Permarient capital \s> that which is comparatively 
permanent. Thus cotton, wool, lumber, etc., to be 
manufactured, are usually called quick capital; 
buildings, machinery, etc., permanent capital. 

Capital may also be classed as productive and 
tmproductive. 

Productive capital is that part of a person's 
wealth which is actually producing other wealth. 

Unproductive capital is that which for the time 
is not productive. These two classes frequently 
change places, — productive capital every day be- 
comes unproductive, and vice versa. 

A capitalist is a person who possesses capital. 

It will be readily perceived that all capital is 
wealth, but all wealth is not capital. 



POLITICAL ECONOMY. 



CHAPTER I. 

WEALTH OF SAVAGES. 

The spontaneous products of Nature, untouched 
by human hand, are not wealth. The mine must 
be worked, the marble must be quarried, the soil 
must be cultivated, the fruit must be gathered, 
labor must be applied, in order that wealth may be 
produced. But men are naturally lazy ; they do 
not love work for the sake of work ; they love 
ease ; they are indolent. But men have certain 
needs, wants, and desires which are usually 
stronger motives than love of ease. The savage, 
influenced by the necessity for food to satisfy his 
hunger, pursues the game ; feeling the need of 
shelter from the storm, he constructs his rude 
wigwam , desirous of adornment, he endeavors to 
obtain ornaments for his person. But his appe- 
tite is stronger than his reason. His desire for 
present gratification is stronger than that for fu- 
ture happiness. He lives for the present, careless 
of the future. Necessity alone can overcome his 

5 



6 POLITICAL ECONOMY. 

love of ease. The result is, that consumption 
rapidly follows production. Consequently there 
can be very little accumulation of wealth among 
savage tribes. 

What they possess is usually obtained by ap- 
propriating the spontaneous products of nature. 
Their food is generally secured by fishing and 
hunting ; their clothing is scarcely sufficient to 
protect them from the inclemency of the weather ; 
their huts are very far from being convenient or 
comfortable ; their tools and implements are of 
the rudest kind. Hence the wealth of the savage 
scarcely deserves the name. They exercise very 
little thought in regard to the future ; they are not 
inclined to labor more than is absolutely necessary, 
consequently the production of wealth is very 
meagre, its accumulation still less. This is the 
teaching of Political Economy in regard to the 
wealth of barbarous tribes. History confirms the 
truth of theory. 



CHAPTER II. 

WEALTH OF SHEPHERD TRIBES. 

As savage tribes improve intellectually and mor- 
ally, there is a corresponding increase in the pro- 
duction of wealth. When reason and conscience 
begin to restrain appetite and passion, self-love 
becomes stronger than self-gratification : future 



WEALTH OF SHEPHERD TRIBES. J 

comfort becomes an element of calculation ; the 
love of ease yields to the desire for accumulation. 
Hunger teaches men that it is not wise to depend 
on fish and game for the support of their daily 
wants. Famine shows them the need of providing 
food for the time of scarcity. Hence they gradually 
cease to depend entirely on fishing and hunting for 
their support, and learn to subsist largely on their 
flocks and herds. Their food, for the most part, is 
flesh, but it is that of the domestic animal, rather 
than of the wild animal. The rude wigwam of 
the barbarian gives place to the more substantial 
hut. The dress and habits of the savage are grad- 
ually laid aside, and the people advance one stage 
in civilization ; they cease to be savages, and be- 
come shepherds. 

True, the shepherd's life is kindred to that of 
the hunter, but it requires more labor, more fore- 
thought, more self-restraint, more care, more rea- 
son, more judgment. The result, as might be 
expected, is the production of more wealth. As 
men advance from a state of barbarism to the sec- 
ond stage in civilization, they cease to rely exclu- 
sively on the spontaneous products of the land 
and the water for their own support ; but they 
still depend entirely upon the uncultivated soil 
for the sustenance of their flocks and herds. 
Therefore the homes of shepherd tribes can only 
be temporary. Hence their wealth must be mova- 
ble. Permanent homes, stable possessions, abun- 



8 POLITICAL ECONOMY. 

dant wealth, advanced civilization, such wandering 
tribes of shepherds can never have. It is only- 
one of the stages of transformation in the progress 
of a nation from barbarism to a high state of civi- 
lization. It is the second stage in the production 
of wealth. 



CHAPTER III. 

WEALTH OF AGRICULTURISTS. 

A NOMADIC life does not always satisfy. Mov- 
ing from place to place is tiresome and annoying. 
Men become attached to the spot where they play- 
in childhood. But when food and water fail in one 
locality, the shepherd must abandon his home, and 
drive his flocks and herds to another. When a 
severe winter comes, his flocks and herds die for 
the want of food which he has neglected to provide. 

Sooner or later, men become tired of shepherd 
life, and begin to desire permanent homes, fixed 
habitations, stable wealth. They crave comforts 
as well as necessaries. But these cannot be 
secured while moving from place to place. Hence, 
gradually they abandon their nomadic habits and 
begin to cultivate the soil, in order to obtain a per- 
manent supply of food for themselves and their 
flocks. They build houses to protect their wives 
and children from the inclemency of the weather, 
they construct barns to shelter their horses and 



WEALTH OF AGRICULTURISTS. Q 

cattle, they cultivate and dress the soil, they plant 
and sow the seed, they weed and tend the crop, 
they gather the ripened harvest. Thus nomadic 
tribes of shepherds gradually abandon their former 
habits, and become farmers, agriculturists. They 
learn that the soil is a slow, but sure paymaster. 
They perceive that the greatest reward is not for 
spasmodic efforts, but for systematic, intelligent, 
continuous labor. Experience shows them the 
need of forethought ; want compels them to practice 
economy; and a desire for the comforts and conve- 
niences of life leads them to toil for the accumula- 
tion of wealth. Such is the tendency of civilization. 
The shepherd becomes a farmer, or becomes ex- 
tinct. He learns to cultivate the ground, or is 
buried in it. He advances to the third stage of 
civilization, or is swept into oblivion. 

During these transition periods certain changes 
take place which have a powerful influence on the 
production of wealth. Some of these will now be 
noticed. 



CHAPTER IV. 

DIVISION OF LABOR. 

As has already been stated, labor is the prime 
element in the production of wealth. But the 
productiveness of labor depends very much upon 
circumstances. When the savage wants food, he 



10 POLITICAL ECONOMY. 

catches the wild animal, kills and eats it. When 
he needs a wigwam, he builds it. Each one sup- 
plies his wants by his own efforts. But no one is 
equally well adapted for every occupation. Differ- 
ent individuals have certain aptitudes specially 
fitting them for particular occupations. Thus one 
person may have a peculiar aptitude for tilling the 
soil. His physical and mental constitution may 
exactly fit him for the vocation. Such a person 
will do more and better work as a farmer, than he 
would if he possessed no love for his calling. But 
if he spends all his time and energy in cultivating 
the soil, he will obtain more food than he will need 
for himself and family, though he will be destitute 
of other things equally necessary. 

Another person may have a special fitness for 
cutting and making garments. Hence he will do 
more and better work as a tailor than he will in 
any other occupation. But if he labors exclusively 
in his own favorite vocation, he will experience 
difficulties similar to those of the farmer. He 
will have too many garments, and nothing to eat. 
So it is with every individual in the community. 
Each has special tastes, desires, capabilities, apti- 
tudes, which fit him for some particular occupation. 
Now if each individual attempts to supply all his 
wants by his own efforts, he will work at a great 
disadvantage. By doing a little of everything, he 
will be good at nothing. But if, on the other hand, 
each person engages in that kind of labor for which 



DIVISION OF LABOR. II 

Nature has fitted him, he will soon be able to do 
more and better work than if he should attempt to 
do a little of everything. 

This fact men learn as soon as they are perma- 
nently located. When the population becomes more 
numerous, and the wants of men are greatly 
increased, advancing in civilization, they begin to 
crave not only necessaries, but luxuries. This 
produces a demand for more rapid production. 
Then some system of division of labor is devel- 
oped. Men with special aptitudes engage in 
particular callings, and then exchange the super- 
fluous products of their labor for other commo- 
dities not needed by their neighbors. At first this 
division of labor is limited to particular trades or 
occupations. Thus the carpenter builds houses; 
the shoemaker manufactures shoes ; the trader 
sells goods. But as the population becomes more 
dense, as civilization advances, the division of labor 
becomes more minute. Thus, in the shoe business, 
one man cuts the uppers, another cuts the soles, 
another cuts the heels, another makes the pegs, an- 
other drives them, and so on, until there may be a 
hundred men engaged in making one single shoe, 
before it is completed and ready to be worn. So 
it is with almost every branch of business, in an 
advanced state of civilization. The benefits of such 
a system of divided labor are apparent. Formerly, 
when the division of labor was more closely limited 
than at the present time, there was a narrower range 



12 POLITICAL ECONOMY. 

for choice of occupation ; the time occupied as an 
apprentice was much longer ; the work performed 
was not so good ; the production of wealth was not 
so rapid. Now, a young man may choose his occu- 
pation from ten thousand specialties ; may learn 
his trade in a few weeks, and take his place as a 
journeyman, doing good work and earning good 
wages. 

It has been a disputed question whether there 
is any limit to this division of labor. But it need 
not be discussed here. Circumstances and not 
theories will determine the amount and the limit of 
the division of labor. Other things being equal, 
the more dense the population, and the more ad- 
vanced the civilization, the greater the amount of 
the division of labor. 



CHAPTER V. 

SUBSTITUTES FOR HUMAN LABOR. 

The wants of the savage are few, and are sup- 
plied by a small amount of labor. But as men rise 
in the scale of being, as they advance in civilization, 
their real and fancied wants increase more rapidly 
than their ability to supply them by their own per- 
sonal efforts. Luxuries of one age become neces- 
sities of the next. Men love ease, but they desire 
to enjoy the products of labor. Hence they soon 
cast about them to find some substitute for human 



SUBSTITUTES FOR HUMAN LABOR. I3 

muscle. The one which is first and most naturally 
employed is that of — 

Domestic Animals as a Motive Power. — Whether 
all animals were once in a wild state, or whether 
the Creator intended that certain beasts should 
become the servants of men, is not a question for 
discussion here. Certain it is that, at a very early 
stage of civilization, men employed domestic ani- 
mals to perform work for them. The ox, the horse, 
the mule, the camel, the elephant, and various 
other animals, have been compelled, by the super- 
ior intelligence of man, to serve him under different 
circumstances, in all ages, for numerous purposes. 
They have borne burdens, carried messages, hauled 
carriages, fought battles, and performed countless 
other valuable services. Thus domestic animals 
have supplemented the manual labor of their own- 
ers, and have contributed an immense amount to 
the aggregate of work performed. They have 
been, and still are, important auxiliaries in the 
production of wealth. 

They are indispensable, and yet they do not fully 
supply the demand for motive power in civilized 
life. They are convenient, profitable, necessary ; 
but the cost of obtaining, the expense for feeding, 
the risk of keeping them, are all serious objec- 
tions. Hence the tendency to substitute some 
other force, which will accomplish the same 
purpose with less trouble, expense, and risk. Nat- 
urally men seek some method of substituting in- 



14 POLITICAL ECONOMY. 

organic force for organic. Generally the first 
advance in this direction is the employment of — 

Wind as a Motive Power. — Early in the world's 
history, men employed wind for a motive power 
instead of muscle, — how early we do not know. 
It has been used for grinding corn, pumping 
water, propelling boats and ships, and numerous 
other purposes. It is still employed extensively 
in many localities. Hence it has been, and still 
is, an important factor in the production of 
wealth. 

But it is so variable and uncertain that it cannot 
be relied on where a steady, continuous force is 
needed. The objections are so serious that man- 
kind soon learned to employ — 

Water as a Motive Power.- — Experience soon 
teaches men that dead matter is a much more re- 
liable force than living muscle. But falling water 
is decidedly preferable to moving atmosphere. The 
cost, like that of air, is nothing, except the expense 
necessary for its application. Gravitation furnishes 
power, the heat of the sun renews it, man by his 
ingenuity applies it. Its value as a motive power 
cannot be estimated. It has contributed greatly 
to the production of wealth. It has been an im- 
portant factor in the progress of civilization. Man- 
kind have obtained many necessaries, secured 
many conveniences, and enjoyed many luxuries, 
which they never could have possessed, had it not 
been for the motive power of falling water. 



SUBSTITUTES FOR HUMAN LABOR. 1 5 

For generations men were satisfied with water 
as a supplementary power. But at last the world 
began to desire something better. It was not 
adequate to meet the wants of an advanced state 
of society. Then scientific men directed their 
attention and energies to the discovery of an agent 
which should meet the demands of the age ; which 
should be practically unlimited in power ; which 
would not be destroyed by drought or flood ; which 
could be safely, easily, uniformly applied. These 
experiments led to the adoption of — 

Steam as a Motive Pozver. — By observation and 
experiment it was ascertained that the vapor of 
water is vastly more powerful than water itself. 
It then only remained to invent some simple 
machine by which this new force could be applied 
and utilized. " But the hour of need never waits 
for the man of genius." " Nature never withholds 
her secrets from him who persistently searches for 
them." Watt, Stephenson, and other men of genius 
invented an engine by which the newly discovered 
force has been successfully applied ; by which the 
wheel, the car, the loom, may be moved ; by which 
all kinds of machinery may be propelled ; by which 
an enormous amount of manual labor may be 
saved ; by which a vast amount of wealth has been 
and will be produced. 

We might also here mention — 

Electricity as a Motive Power. — Electricity has 
been successfully employed for conveying messa- 



1 6 POLITICAL ECONOMY. 

ges over the land and under the ocean ; for light- 
ing our streets, our homes, and public buildings ; 
and for numerous other useful purposes. It is a 
powerful agent, practically omnipresent, and almost 
omnipotent. Already wonderful things have been 
accomplished by its agency ; but what will be done 
by it as a motive power when it is brought under 
perfect control, no man can safely predict. The 
application of steam produced a revolution in the 
material world ; the perfection of machinery by 
which electricity can as easily and safely be made 
to obey the will of man may produce a greater 
revolution. It has already proved to be an impor- 
tant element in the production of wealth, an essen- 
tial factor in the progress of civilization. 



CHAPTER VI. 

MACHINERY. 

It has been argued that men may exist in a state 
of absolute barbarism, feeding upon the sponta- 
neous products of a tropical climate, as do brutes, 
without tools or implements except what Nature 
has provided for them. However this may be in 
theory, practically no tribe has ever been found so 
low in the scale of being as to be entirely desti- 
tute of tools and implements. In the earlier stages 
of society these were extremely rude. They are 
used simply to enable men to employ their own 



MACHINERY. \*J 

muscular powers more advantageously in produc- 
ing the necessaries of life. But every advance in 
civilization has been preceded, accompanied, or fol- 
lowed by a corresponding improvement in tools 
and implements. The invention and manufacture 
of tools have been important elements in the pro- 
duction of wealth. 

When the only method of supplying the wants 
of men is manual labor, the means and methods of 
applying force are extremely simple. But when 
other powers are to be employed to supplement 
human muscle, there is need of more elaborate 
contrivances by which to accomplish the purpose. 
This leads to the invention and manufacture of 
more elaborate machinery. Man can guide his 
own footsteps by the exercise of his will ; but when 
he wishes to direct those of a horse, he needs a 
bridle. He can carry a bundle on his shoulder; 
but if the horse is to become his burden-bearer, he 
must have a saddle. He can turn the green turf 
with a spade or a shovel ; but if the ox is to per- 
form the same service, he must have a yoke, a 
chain, and a plough. He can pulverize the soil 
with a rake or a hoe ; but if the horse is to effect 
the same purpose, he must have a harness and a 
harrow. 

Thus, when men began to use domestic animals 
as substitutes for manual labor, there was devel- 
oped an absolute necessity for proper machinery. 
The demand produced the supply. The supply 



l8 POLITICAL ECONOMY. 

resulted in an increased production of wealth. The 
savage may propel his canoe across the river with 
a paddle ; but when the wind is to be employed, 
instead of muscle, to waft the great ship across 
the broad ocean, there is need of machinery. He 
can crush his corn with a stone, on the cliff ; but 
when falling water is to be employed to perform 
the same service a thousand times more rapidly, 
there is need of a mill with modern machinery. 

The pioneer may travel slowly across the coun- 
try and carry a bundle ; but when an army with its 
equipments, its baggage and supplies, is to be 
carried across a continent, rapidly and safely, by 
means of a little vapor of water, an engine of 
peculiar construction is necessary. 

A man may express his thoughts by writing 
them with a pen on paper ; but if millions of vol- 
umes are to be printed yearly, by means of steam 
power, only the genius of an advanced stage of 
society can contrive a machine which will accom- 
plish such a result. 

A man may stand in his own doorway and talk 
with his neighbor across the street ; but if he is 
to sit on the shore of the Atlantic and talk to 
another on the coast of the Pacific, there must be 
some kind of machinery by which the sound may 
be conveyed. 

Thus, every force discovered calls for new ma- 
chinery by which it may be applied. The intro- 
duction of new machinery increases the production 



CAPITAL. 19 

of wealth. The increase of wealth gives more 
leisure for study, invention, and discovery. These 
causes and effects mutually act and react upon 
each other. 



CHAPTER VII. 

CAPITAL. 

Capital is that part of wealth which is employed 
in the production of other wealth. 

Although labor is the prime element of wealth, 
yet labor alone can produce no wealth. At first, 
the spontaneous products of nature are appropri- 
ated by means of human effort to supply the wants 
of men. But the amount of wealth thus produced 
is very small. At a very early stage in the pro- 
gress of the race, a part of the wealth already 
acquired is employed in the production of other 
wealth. 

Thus the bow, the arrow, the tomahawk of the 
American Indian might be exchanged for other 
things which would gratify his desires, and they 
may properly be considered wealth ; but as they 
are retained in his possession in order to aid him 
in obtaining food for the future, they are also called 
capital. The hooks, lines, and boats of the fisher- 
man are a part of his wealth ; but they are also 
used by him to increase his wealth. They are his 
capital. 



20 POLITICAL ECONOMY. 

Seed placed in the ground by the farmer is val- 
uable, but it is sacrificed in order that a harvest 
may be secured. Seed is a part of the farmer's 
capital. Payment made for labor, with the expec- 
tation that the return will be greater than the 
outlay, is capital. 

It will be readily perceived that wealth and cap- 
ital are not synonymous terms. All capital is 
wealth, but not all wealth is capital. The feathers 
and finery of the American Indian will gratify his 
desire for ostentation, but his bow and arrow will 
assist him in procuring food for the morrow. The 
shrubs and flowers on the lawn of the farmer may 
gratify his love of the beautiful, but his cornfield 
will produce food for the support of his family. 
Both are wealth, but only the latter is capital. A 
man may have any amount of wealth, but it is 
called capital only when employed for the purpose 
of producing additional wealth. 



CHAPTER VIII. 

INCREASE OF CAPITAL. 

Capital is constantly decreasing. Machinery 
wears out, workshops decay, and all other kinds of 
capital are liable to diminish in value : but the 
natural tendency is toward an increase of capital. 
Like attracts like, wealth attracts wealth, capital 
attracts capital. The one talent hid in the ground 



INCREASE OF CAPITAL. 21 

was unproductive. The two, the five, the ten 
were used, and returned with usury. 

There are numerous circumstances which tend 
to promote the increase of capital, a few of which 
will now be noticed. 

Location. — A territory with mountainous re- 
gions so situated as to condense the moisture of 
the clouds in proper quantities ; with fertile val- 
leys broad enough to sustain a numerous popula- 
tion ; with navigable lakes and rivers sufficient to 
furnish abundant means for internal traffic ; with 
safe, convenient, and numerous harbors communi- 
cating with the ocean, the great highway of for- 
eign commerce ; such a territory will naturally 
attract capital from without, and create capital 
within its own borders. The increase of capital 
in such a nation must be rapid, provided that other 
circumstances are favorable. The United States 
is so situated. 

Nature of the Soil. — A barren, rocky, moun- 
tainous region, without commercial facilities, with- 
out mineral resources, without agricultural ad- 
vantages, where the inhabitants are compelled to 
obtain their support from the products of the soil, 
cannot be so favorable for the increase of capital 
as a fertile valley like that of the Mississippi. 
The nature of the soil frequently determines the 
character of the inhabitants. Poor soil is the 
native home of poverty. It furnishes stopping- 
places for those who can obtain no better loca- 



22 POLITICAL ECONOMY. 

tions, while good soil attracts men of talent and 
energy and develops capital. 

Climate. — Climate, also, has an important in- 
fluence on the increase of capital. A rigorous 
climate like that of Greenland, or an unhealthy 
one like that of Africa, is unfavorable for the in- 
crease of capital, since it is difficult to procure 
the labor necessary to render its employment pro- 
fitable. But where the climate is agreeable and 
healthful, there men are energetic and vigorous : 
there people love to dwell ; there wealth concen- 
trates ; there capital accumulates, provided that 
other circumstances are favorable. 

Character of the hihabitants. — To the barbarian, 
present ease and enjoyment are much more im- 
portant than future happmess and comfort. Of 
the exercise of forethought he knows very little. 
To the practice of economy he is a stranger. 
With him consumption is the rule, accumulation 
the exception. Theory would seem to indicate 
that there would be very little increase of capital 
among savage tribes. The history of the world 
confirms the theory. 

But when men begin to exercise their reasoning 
powers they soon perceive that capital is an almost 
indispensable auxiliary of labor in the production 
of wealth. They see that labor is powerless 
without capital, and at a very early stage in the 
progress of a people they set apart a portion of 
their earnings for capital. Other things being 



INCREASE OF CAPITAL. 23 

equal, every advance in the ability, the intelli- 
gence, the morality of a people, is accompanied by 
a similar increase in the amount of productive 
capital. And this increase is rapid, because the 
surplus wealth accumulated to-day is added to the 
working capital of to-morrow. Thus the capital 
of a nation, compounding continually, increases in 
a geometrical ratio. Whether there is a natural 
limit to this increase will not be discussed here. 
Certain it is, that if a people labor intelligently, 
reason correctly, live economically, and all other 
circumstances are favorable, they may confidently 
expect to accumulate property rapidly and per- 
manently. But when the heart of a people be- 
comes rotten, when the civilization of a nation 
begins to decay, it is certain that the height of 
prosperity has been reached ; that the increase 
of capital will cease ; that the diminution of prop- 
erty will commence. 

Nature of the Government. — In the savage state 
might makes right ; the stronger party appro- 
priates the property of the weaker ; there is no 
security for the products of labor; and conse- 
quently little incentive to accumulate capital. In 
a nation where the government is unstable, rapa- 
cious, tyrannical, revolutionary, capital increases 
slowly. It has a cowardly nature, and demands 
security. 

The man who sows the seed wishes to be sure 
that he can have the privilege of reaping the 



24 POLITICAL ECONOMY. 

harvest. Government must guarantee that con- 
tracts shall be considered valid ; that ownership 
shall be regarded as sacred ; that wealth shall not 
be confiscated ; that life and property shall be 
protected. Otherwise there can be no permanent 
increase of capital. 

Capital is quick to perceive danger. It discov- 
ers the approach of riot, revolution, anarchy, with 
almost absolute certainty. It is an excellent polit- 
ical barometer. It is always in favor of peace, 
quiet, harmony, good order. Poverty can afford 
to be rash and radical, but capital is always a con- 
servative element in society. 



CHAPTER IX. 

TRADE. 

Trade is the exchange of values, or the titles 
to values. 

Trade is of two kinds, direct and indirect. 

Direct trade is the giving of one commodity for 
another. This is frequently called barter. 

Thus, one person has wheat, another corn ; one 
gives the other a bushel of wheat and receives a 
certain quantity of corn. This is the simplest 
form of trade ; in the early stages of society it is 
the only form. 

The two parties meet, examine the articles, 
agree upon terms, and make transfers. There is 



TRADE. 



25 



no third party, no money, no medium of exchange. 
Trade of this kind must necessarily be limited to 
those who live near each other. 

But as people learn to appreciate the value of 
articles outside of their immediate vicinity; as 
they perceive the advantage of exchanging com- 
modities with those who are not their near nei2:h- 
bors, market places are frequently established 
where people from the whole circle around may 
congregate at certain stated times and make ex- 
changes. In this way the parties meet as before, 
and the trade is direct ; but the conveniences for 
traffic are superior. This is usually the second 
stage of progress in trade. 

But such a system of markets cannot long en- 
dure, for there is too much expense, too much 
travel, too much loss of time. Men cannot always 
meet each other face to face when exchanges are 
to be made. 

A man wants tea from China, coffee from Java, 
sugar from Cuba, rice from India, and numerous 
other articles which he cannot procure of his 
neighbors or at local markets. But he does not 
care to take the time or incur the expense of 
visiting those distant lands where such commodities 
can be obtained by direct exchange. Hence arises 
a demand for middlemen, traders, or dealers, as 
they are sometimes called, to stand between the 
producer and the consumer. Goods pass from the 
producer to the wholesaler or merchant, thence to 



26 POLITICAL ECONOMY. 

the retailer or dealer, thence to the consumer. 
They may pass half around the earth before they 
reach their final destination. They may go through 
a hundred hands before they reach the consumer. 
The producer may live in China, and the consumer 
in the United States. 

Exports are goods carried from one country into 
another. 

Imports are goods brought into one country /w;^^ 
another. 

Exporters are merchants who convey goods out 
of a country. 

Importers are merchants who receive goods from 
foreign lands. 

Duties, customs, imposts^ are taxes paid to the 
government for the privilege of importing or ex- 
porting merchandise. 

Tariff is a schedule of duties payable to the 
government for the privilege of importing or ex- 
porting merchandise. 

Duties may be specific or ad valorem. 

Specific duty is a specified amount per yard, per 
gallon, per bushel, etc. 

Ad valorem duty is a certain percentage on the 
cost of the merchandise. 

As a people advance in civilization, their wants 
increase. As they become accustomed to the pro- 
ducts of other lands, things at first considered 
luxuries become necessaries, and there is a cor- 
responding increase in imports. But imports must 



TRADE. 27 

be obtained in exchange for exports. Something 
cannot be secured for nothing. 

Now it has long been a disputed question 
whether there should be any restriction upon the 
importation and exportation of merchandise. 

In regard to this question, probably there has 
been more difference of opinion than in respect to 
any other in the whole range of political economy. 

The shrewdest politicians, the wisest statesmen, 
the most learned scholars, the deepest thinkers, 
are by no means agreed in respect to this subject. 
Various theories have been advanced, numerous 
experiments have been tried, and still public sen- 
timent remains divided. It should be remem- 
bered that this subject involves some of the most 
important questions in social science. Theories 
should not be adopted hastily in regard to. restric- 
tions in trade ; but they should be carefully tested 
in the light of history with reference to the pres- 
ent circumstances. Angry debate and party ani- 
mosity are out of place in discussing such a sub- 
ject. The laws of nations have differed as radi- 
cally as have the theories of political economists, 
from absolute free trade, through all grades of re- 
striction, to perfect non-intercourse with other 
nations. 

The most important of these theories will now 
be presented, together with the arguments usually 
advanced for and against each. 



2^ POLITICAL ECONOMY. 

CHAPTER X. 

FREE TRADE. 

The theory of free trade is perfectly simple, 
namely, that there should be no restriction what- 
ever upon the freedom of trade ; that the markets 
of the world should be thrown open to every man, 
without regard to national boundaries ; that there 
should be no charge for the privilege of importing 
and exporting merchandise ; that money to pay 
the expenses of the government should be ob- 
tained by taxing the persons and property pro- 
tected : that every restriction upon the free 
exchange of commodities is unnatural, and will, 
consequently, be an injury to the producer or 
consumer, or to both. 

The friends of this theory argue that, as the men 
of all nations belong to the same common family, 
therefore all should have the privilege of buying and 
selling wherever prices are the most favorable. 
They say that a man should have the privilege of 
exchanging commodities with his neighbor without 
being compelled to pay a tax on every article ex- 
changed ; but according to the teaching of the Bible 
evejy man is his neighbor, therefore he should have 
perfect freedom to trade with any man on earth with- 
out the payment of duties. The answer is made 
that the cases are not alike. A man ought to have 
a right to exchange the products of his labor with 



FREE TRADE. 29 

his neighbor freely, provided that there is no reason 
to the contrary. But if a man has bought land, 
and on it built a market-place for the purpose of 
exchanging merchandise with his neighbors con- 
veniently and economically, then another man has 
not the same right to occupy that market-place as 
has the owner. Others have not the right to 
occupy stalls in that building without paying for 
the privilege. 

Let us apply this same principle to nations. A 
nation spends millions of dollars improving its 
rivers and harbors, encouraging manufactories, 
providing commercial facilities, building railroads, 
and developing markets for merchandise : then that 
nation has a superior claim to the markets of that 
territory. It has a right to charge a man who has 
contributed nothing for all these improvements for 
the privilege of occupying such markets. 

The man who has a farm better situated than 
that of his neighbor charges more for rent than 
the other. This is considered perfectly just. In 
like manner, a nation so situated that it has a 
better market than others has a perfect right to 
charge foreigners a reasonable amount for the priv- 
ilege of buying or selling in that market. There 
can therefore be no doubt in regard to the moral 
right which a nation has to levy a duty on imports. 

Then the question whether trade should be free 
or restricted becomes simply one of policy. 

But the free trader asserts that every barrier 



30 POLITICAL ECONOMY. 

placed on a nation's boundary prevents the. free 
exchange of commodities, and consequently in- 
creases the price which must ultimately be paid by 
the consumer. 

The answer usually given to this assertion is, 
that the duties collected are paid into the public 
treasury, and the reduction of direct taxes will 
more than compensate for the increase in prices. 

Again, it is asserted that a revenue should be 
collected by direct taxation, not by indirect meth- 
ods: then every man will pay his just proportion 
of the public expenses. The reply generally made 
to this statement is, that no other method has ever 
been devised by which taxes can be collected so 
easily, so cheaply, and with so little complaint and 
opposition, as by levying a duty upon imported mer- 
chandise. It is confidently asserted by the oppo- 
nents of free trade that the enormous amount of 
money which has been collected by indirect meth- 
ods in the United States since i860 could not have 
been obtained by direct taxation ; the people would 
have rebelled. 

It is also objected by the free trader that, when 
duties are levied on imports, the poor man must pay 
as much tax as the rich man. This is true if he 
purchases the same kind and an equal amount of 
imported merchandise, for the consumer must 
eventually pay the duty ; but the usual method is 
to place a high tariff on luxuries^ and none on 
necessm'ieSy so that the poor man need not pur- 



FREE TRADE. 3 1 

chase a single dollar's worth of imported goods 
unless he chooses to do so. Then he will pay 
no tax. 

But it is said that the system of free trade is the 
only one consistent with true benevolence ; that a 
nation should open its doors and let foreigners 
have the same privileges as citizens. This is a 
very pleasing theory, but it fails when applied to 
the common affairs of life. A man does not throw 
open the doors of his house, his barn, his granary, 
his store, his safe, and invite every one to come 
and take what he desires. The man would soon 
have nothing left, and the partakers of his wealth 
would probably be injured by the possession of 
property which they did not earn. Such a man 
would be considered a fit subject for an insane asy- 
lum. Apply the same principle to a nation, and 
the absurdity will be apparent. If a nation has a 
good market it may be completely ruined by mak- 
ing it free for the importation of merchandise from 
all parts of the world. 

Such a principle universally applied would make 
everything common, would abolish personal rights, 
would annihilate corporate privileges. But it is 
conceded that an individual may hold property, 
may enjoy certain privileges exclusively without 
injustice to his neighbor, and with benefit to soci- 
ety. So it is claimed that a town, a county, a 
state, a nation may possess certain natural advan- 
tanges or acquired privileges, and charge others 



32 POLITICAL ECONOMY. 

for the use of them, and all parties be thus bene- 
fited. Charity begins at home. Benevolence has 
its limits. 



CHAPTER XI. 

TARIFF FOR REVENUE. 

Governments are necessary in order to prevent 
anarchy. But governments cannot exist without 
money. Hence there must be some permanent 
system of replenishing the public treasury. There 
must be some way of collecting funds to pay the 
expense incurred in protecting life and property. 
Taxation of some kind is an absolute necessity. 
Now, certain classes of men advocate the theory 
that funds for the support of the government can 
be more easily and more economically collected by 
levying a tariff on imports than in any other way. 

But when theory is put in practice, difficulties 
are always encountered. Hence various methods 
have been advocated. 

Some have asserted that a certain percentage 
sufficient to pay the expenses of the government 
should be collected on all goods imported. But 
the opponents of this theory claim that such a 
system is unjust ; that necessary articles should 
not be taxed as heavily as luxuries ; that the poor 
man should not be compelled to bear as much of 
the public burden as the rich man ; that home 



TARIFF FOR REVENUE. 33 

industry should not be discouraged by a uniform 
tariff ; that the theory has always failed when sub- 
mitted to the test of actual trial. 

Others have argued that all the revenue should 
be collected from articles which are injurious, like 
alcohol and tobacco. The advocates of this theory 
say, "Tax evil habits and vices, tax injurious 
articles." 

But the question arises, When was an evil ever 
taxed out of existence ? Men will have alcohol 
and tobacco as long as it is for sale, no matter 
what may be the price. By taxing these articles 
so heavily the poor man is compelled by the 
strength of his appetite to pay a large proportion 
of the public expense. Such evils must be pre- 
vented by legislation, prohibition, penalties, — not 
by taxation. 

The protectionist objects to this theory because 
it does not protect home industry, except the 
making of whiskey and the cultivation of tobacco. 
By placing a heavy duty on these articles, the 
price will be raised, the production will be in- 
creased, and the evils which the tariff was designed 
to prevent will be promoted. This effect can be 
averted only by imposing a tax on production 
equal to that on importation. 

Others, who advocate the theory of tariff for 
revenue only, say that luxuries alone should be 
taxed, so that the poor man should be exempt from 
taxation. The answer is that this practice stimu- 



34 POLITICAL ECONOMY. 

lates the home production of luxuries ; that it 
encourages the importation of staple articles ; that 
it drains the specie from the country ; that it ruins 
the home market ; that it reduces the price of 
labor; that it injures the poor man; and that it 
defeats the very purpose for which the system is 
advocated. 

Hence in the application of this theory, which 
at first seems perfectly simple, numerous difficul- 
ties are encountered. 



CHAPTER Xn. 

PROTECTION. 

The theory of the protectionists is this : That 
there should be a tariff on imported articles high 
enough to secure sufficient revenue for the support 
of the government ; that the taxes should be so 
adjusted as to protect home industry ; that there 
should he free importation of all raw material not 
producible in the country ; that native products 
and home manufactures should be protected by 
properly regulated schedules of duties; that the 
tax should be so adjusted that the agriculturist, 
the mechanic, and the manufacturer may each be 
equally benefited. 

But, it may be asked, how does duty on imports 
protect home industry ? 

In the old world capital is plenty, interest is low, 



PROTECTION. 35 

labor is cheap, and men are satisfied with small 
profits. In the United States all these circum- 
stances are reversed. Hence capital can be loaned, 
buildings can be erected, machinery can be pur- 
chased, laborers can be hired, merchandise can 
be manufactured, very much cheaper in the old 
world than in the new. 

Now, it is asserted by the protectionist that if 
articles manufactured in Europe are permitted to 
come into free competition with those made in 
this country, one of two results will inevitably 
follow — either the price of interest, rent, and 
labor must be scaled down to the European stan- 
dard, or our manufactories must be closed. 

For example, suppose that cotton cloth can be 
made in England and brought to Lowell for five 
cents per yard, and suppose that it costs six cents 
per yard to manufacture the same kind of cloth in 
Lowell, if there is no duty on the cloth brought 
from England it can be sold under the very shadow 
of the mills in this country for less than the cost 
here, and still the foreign manufacturer will make 
a good profit. The result in such a case must be 
the closing of our mills, or the cutting down of 
prices to correspond with the pauper wages of 
Europe. 

Hence, our laborers must become producers of 
raw material, and work at starvation prices, while 
the manufactories and the profits will be on the 
other side of the ocean. 



36 POLITICAL ECONOMY. 

The protectionist confidently asserts that such 
must be the result of free trade theoretically. And 
he as confidently points to the pages of history to 
prove that ruinous results have followed the prac- 
tical application of the theory. He points to the 
poverty, the suffering, the misery, the degradation 
of the laboring men and women of Ireland as a 
practical example of the effects of free trade legis- 
lation. 

On the other hand, it is asserted by the protec- 
tionist that opposite effects will always follow a 
high tariff judiciously adjusted. 

Take, for instance, the same example as before. 
If cloth can be brought from England for five 
cents a yard, and manufactured here for six cents, 
then a tax of one cent would place both parties on 
equal terms in our market ; but if a duty of two 
cents a yard should be levied, then there would be 
a margin of one cent a yard for profit. Cloth 
brought from England would cost seven cents, 
cloth made here could be produced for six. This 
would give our manufacturers practical control of 
the markets, and consequently increase the profits. 
But profits are always divided between labor, cap- 
ital, and the manufacturer. And it is a well-known 
fact that the largest share of the returns is paid 
for labor. Hence the immediate result of high 
duty is an increase of the wages of the laborer, and 
the employment of home capital. But if the profits 
are greater, more manufactories will be built, more 



PROTECTION. 37 

laborers will be employed, and there will be a 
greater demand for the products of the soil. 
Thus the farmer will receive more for his crops, 
and be benefited by a high tariff upon imports. 
But laborers in manufactories will need houses and 
all other kinds of necessaries ; hence mechanics, 
merchants, traders, and, in short, all classes will be 
benefited. 

This is the condensed theory of the protec- 
tionist. 

To many persons the theory seems easy and 
plausible ; but there are difficulties in regard to 
its practical application in a territory as exten- 
sive and varied as that of the United States. 
Some of these will now be noticed. 

Pennsylvania, for instance, is largely interested 
in iron, and demands a high rate of duty on it in 
order to prevent its importation from other coun- 
tries. But as " everything is made of iron or with 
iron," a large part of the fifty millions of American 
people prefer that iron should be placed on the 
free list. But if the duty on iron should be en- 
tirely removed, every iron mine in the United 
States would be closed, or the prices of labor 
would be greatly reduced. Hence the producer 
clamors for protection, but the consumer com- 
plains that he is oppressed for the benefit of the 
few. 

The lumbermen of the North call for a high duty 
on lumber in order to prevent competition from 



38 POLITICAL ECONOMY. 

British America. But the great majority of the 
American people demand cheap lumber for fence- 
less farms and houseless families. Hence, here is 
a clashing of interests not easy to be reconciled. 
Protection for one class is sometimes called op- 
pression by another. 

A few planters on the shores of the Gulf of 
Mexico clamor for a high duty on sugar, but the 
great majority of the people of the United States 
complain of being taxed too heavily for the benefit 
of so small a number. Some men contend that it 
would be more economical to pay the planters a 
liberal bounty from the national treasury on every 
pound of sugar produced, and then let sugar be 
imported free of duty. 

Thus it is with every separate branch of indus- 
try. Each clamors for protection even at the ex- 
pense of more important interests. Hence it is 
frequently contended that "protection of one class 
is oppression for another ;" that "protection does 
not protect." 

It is admitted that a high tariff raises prices of 
protected articles for the time being, and conse- 
quently increases production. But the opponents 
of the system contend that the result always is 
overproduction, and consequent stagnation. The 
cost being more than in countries where trade is 
free, there can be no foreign market. But the 
large profits stimulate production, and soon the 
home ma-kets are overstocked; there is stagna- 



MODIFIED PROTECTION. 39 

tion, depression of prices, cutting down of wages, 
dissatisfaction of laborers, strikes of workmen, 
suspension of manufacturing, bankruptcy of em- 
ployers, panic, distress, suffering of the masses. 

It is argued that a high tariff is like any other 
stimulant. It produces a feverish, fancied, ficti- 
tious success which is sometimes mistaken for 
permanent prosperity ; but which, in the end, will 
prove injurious to the great body of the people ; 
that it inflates prices, encourages speculation, and 
leads to reckless commercial gambling ; that it 
produces the very evil which it is designed to 
prevent, — the reduction of prices and the ruin 
of a market. 



CHAPTER XIII. 

MODIFIED PROTECTION. 

During past ages various kinds of theories have 
been advocated in regard to restrictions upon trade, 
but all of them have been modifications of one or 
more of the three which have been explained. 
Some say, "Tariff for revenue, and protection 
incidental ; " others, " Tariff for protection, and 
revenue incidental ; " others, " Tariff for protec- 
tion ; " and still others, " Tariff to prevent impor- 
tation." None of these theories need any further 
explanation. 

There is, however, a kind of modified protection 



40 POLITICAL ECONOMY. 

theory advocated by some modern political econo- 
mists which may need a passing notice. 

It is a well-known fact, that in a new territory 
money is scarce, interest high, laborers few, anc^ 
manufacturers need to be protected by a high 
rate of duty, in order that they may compete 
with those of older communities, where capital and 
labor are plenty. But as the people become more 
wealthy, as the amount of production increases, 
as labor becomes more abundant, as manufactories 
become more numerous, as competition becomes 
sharper, as the home market becomes better sup- 
plied, the duty on imported articles should be 
gradually reduced. As a people advance in civili- 
zation the artificial barriers should be removed, 
and all kinds of commodities should be freely 
admitted to the markets of the world. 

The advocates of this theory contend that a 
high duty produces an artificial, local value, and 
hence there can be no permanent market for pro- 
tected products with free-trade nations ; that when 
the home markets are glutted, there must be an 
outlet for production, or there will be stagnation. 

To compete with others in the markets of the 
world, therefore, there must be a reduction of cost, 
but to effect this there must be a lower rate of 
duty. Hence, it is contended by those who advo- 
cate this theory, that there should be a high duty 
for the protection and encouragement of home 
production during the infancy and childhood of a 



MODIFIED PROTECTION. 4I 

nation ; that there should be gradual reduction as 
manufactories become more firmly established, 
and that the time may come in the progress of a 
race when absolute free trade will be a nation's 
true policy. 

These men contend that the whole subject, like 
almost every other in political economy, is a prac- 
tical one ; that no theory can be adopted which can 
be successfully applied under all circumstances ; 
that a thorough knowledge of economical history, 
and a perfect understanding of the present state 
and wants of the people, are necessary in order to 
decide what amount of duty should be levied. 
When a nation is involved in war, and needs every 
dollar which it is possible to collect, then the duty 
must be adjusted so as to produce the greatest 
amount of revenue. Protection must then be 
incidental. 

Public policy and not party prejudice should 
control the question of revenue. Wise statesmen 
should carefully consider the situation and circum- 
stances of a nation, and adjust the tariff to meet 
the demands of the times. Changes should be 
made to meet the changing condition of the peo- 
ple. What may protect at one time may oppress at 
another. What may benefit one people may in- 
jure another. 



42 POLITICAL ECONOMY. 



CHAPTER XIV. 

MONEY. 

As long as barter is the only kind of trade, 
there is no need of money. But as soon as there 
is an indirect interchange of commodities, there 
is a demand for some measure of value, some 
medium of exchange, some substance which shall 
be generally desirable, something which will have 
universal value. 

Money is an authoritative measure of value, and 
is used as a medium of exchange. 

The mile is a measure of distance ; the acre, of 
surface ; the gallon, of capacity; the pound, of 
weight ; money, of value. 

Various substances have been employed for 
money. Barbarous tribes have used shells ; hun- 
ters, furs ; fishermen, fish and salt ; pastoral 
tribes, cattle, sheep, and goats ; agriculturists, 
wheat, corn, fruit, tobacco. The American Indians 
used coal, lignite, bone, mica, pearl, carnelian, 
jasper, agate, and various other things. But the 
money most commonly used was wampum, a 
species of spiral fresh-water shell. 

The ancient Greeks and the Anglo-Saxons 
employed cattle and slaves for money. The Car- 
thaginians used leather ; the Abyssinians, salt. 
Tobacco was a legal tender in Virginia in 1660; 
wheat in Massachusetts in 1641. 



MONEY. 43 

But there are objections to all these sub- 
stances. 

As money is a measure of value, it must pos- 
sess value in itself, or must represent intrinsic 
value. A measure of length must have length ; 
a measure of capacity, capacity ; a measure of 
quantity, quantity. In like manner a measure of 
value must have value. A standard of value 
must be valuable. Like measures like, and when 
any article ceases to possess or represent value, it 
will no longer serve as a medium of exchange. 
No one wishes to exchange a valuable commodity 
for a worthless one. Hence, money should have 
a permanent value, independent of time, distance, 
or any other circumstance. 

But in order to be universally desirable, money 
must possess peculiar properties. 

It must be imperishable. It must be a substance 
which cannot be injured by climate, burned by 
fire, destroyed by time. 

It must be divisible without losSy so that it can 
be used in small or large quantities and stamped 
at pleasure. 

// must contain great value in small bulk, so that 
it can be conveniently stored and readily trans- 
ported. 

Its supply should be as uniform as possible. Its 
increase and decrease should not be so rapid as to 
affect suddenly the amount in circulation and con- 
sequently its commercial value. 



44 POLITICAL ECONOMY. 

These properties are essential for any substance 
which is to be taken as a unit of value. 

Political economists have usually enumerated 
several others, which at least are very desirable. 

Applying the four tests to the substances pre- 
viously mentioned as having been used for money, 
they all appear to be more or less faulty. Shells 
have not sufficient intrinsic value ; fish, salt, 
leather, are perishable ; agricultural products are 
too bulky, and are subject to rapid increase and 
decrease in quantity ; cattle and slaves may die, 
they cannot be kept without loss, they are not 
devisable, they cannot be easily transported. The 
result has been that as nations have emerged from 
barbarism, and have advanced in civilization, they 
have abandoned these crude and inconvenient 
forms of money, and have adopted gold and silver 
as standards of value. 

These two metals seem to possess exactly the 
qualities requisite for money. The Creator seems 
to have designed them for that special purpose. 

At first they were weighed. 

Abraham weighed out to Ephron four hundred 
shekels of silver to purchase the burial-place at 
Machpelah eighteen hundred and sixty years be- 
fore the Christian era. This is the earliest record 
to be found in history of the payment of money. 

The custom of weighing out money was incon- 
venient and unsatisfactory, but, this being the best 
method known, it was continued for centuries. 



COINAGE OF MONEY. 45 

CHAPTER XV. 

COINAGE OF MONEY. 

It is not certainly known when or where coins 
were first stamped and used. Most authorities 
assert that gold and silver were first coined by the 
Lydians about eight hundred years before Christ. 
The Romans coined silver about 300 B. C. They 
coined gold about 200 B. C. But at the present 
time all civilized nations use one or both of these 
metals for money, and most nations use also cop- 
per, bronze, or nickel for the smaller classes of 
coins. 

Coins are portions of metal stamped by the 
sovereign power to indicate the exact amount and 
quality of the metal. Many persons have an idea 
that the government can increase or decrease the 
value of coin by altering the stamp without chang- 
ing the amount of material. Some ignorant people 
think that the government could take half-dollars 
and stamp them dollars^ and they would then be 
worth twice as much as they v/ere before. This 
has been tried again and again, and has always 
failed ; and it will fail as long as it remains impos- 
sible for man to create something out of nothing. 
Men may change the name of a coin, or they may 
reduce the weight and fineness of the material, 
but they cannot change the value of the same 
amount and quality of metal by such a change. 



46 POLITICAL ECONOMY. 

Formerly it was considered that the expenses 
for supporting the government must be paid by 
the king from his revenues. Hence, when the 
kings of Europe became greatly involved in debt, 
they debased the coin of the realm by decreas- 
ing its weight and fineness. Thus not only the 
creditors of the king were defrauded, but every 
creditor in the kingdom. If a king owes a cred- 
itor one hundred pounds of silver, and then makes 
a decree that a half pound shall be called a 
pound, because he possesses supreme authority, 
then fifty pounds of silver will pay the debt. But 
the creditor receive only half the value which 
was due him. If he goes into the markets of the 
world he can purchase only half as much as he 
could with the hundred pounds. If he wishes 
to pay a debt already contracted, it enables him 
to defraud his creditors of one half the debt 
which he honestly owes him. This debasing of 
the coin enabled the king to cheat his creditors, 
and licensed every debtor in the kingdom to legally 
defraud those whom he honestly owed. Changing 
the weight or fineness of the coins will have the 
same effect in regard to value as a change in the 
length of the yardstick would have in respect to 
measure. 

If a person has agreed to furnish one hundred 
yards of cloth for a specified amount, and after- 
wards the yardstick is shortened one half, he will 
be obliged to deliver only half as much cloth as he 



COINAGE OF MONEY. 4/ 

agreed to deliver. Thus he gains, and the other 
party loses, just in proportion to the shortening of 
the yardstick. 

But if the yardstick should be made twice as 
long as it was when the contract was made, then 
the result would be exactly opposite. The debtor 
would be required to deliver twice as much cloth, 
and the creditor would receive twice as much as 
he ought. 

So, if a contract is made to deliver a specified 
number of yards of cloth at a stated time in the 
future, then a change in tHe standard of measure- 
ment would change the nature of the contract, 
and one party would defraud the other if the same 
number of yards should be delivered. 

A similar result takes place when the standard 
of value is changed. If the sovereign authority 
decrees that a half dollar shall be stamped a dol- 
lar, and that it shall be a legal tender for that 
amount in payment of all debts both public and 
private, then every creditor will receive just half 
as much real value as is honestly his due, and 
every debtor will be relieved of half of what he 
ought to pay. 

It took a long time to establish the fact that 
governments could not tamper with the coinage 
without undermining the very foundations of public 
confidence, destroying the validity of contracts, 
and legalizing wholesale fraud. Nothing but the 
practical experience of centuries ever convinced 



48 POLITICAL ECONOMY. 



kings and rulers that something could not be cre- 
ated out of nothing by human power. 

Greece, Rome, France, Spain, England, and 
most other nations, at some time have tried the 
experiment, and disaster has invariably followed. 
And it now seems to be an established principle 
among civilized nations that the unit of measure 
shall not be changed ; that the standard of value 
shall not be tampered with ; that contracts shall 
be considered sacred. 



CHAPTER XVI. 

THE DOLLAR, OR UNIT OF VALUE. 

Another question which has caused a great 
amount of discussion is this : whether the unit of 
measure shall be made of gold or silver. In the 
United States, as the dollar is the unit of value, 
some have argued that the unit should be made of 
silver ; that a certain amount of silver, sufficient 
to make a coin convenient for use, should be 
stamped a dollar, and that these dollars should be 
legal tender for the payment of all debts both 
public and private ; that the smaller coins should 
be proportional parts of the unit ; that silver 
should be the basis of value ; and that the weight 
and fineness of the gold dollar should be regulated 
by the price of gold in the market when compared 
with silver. The objection to this theory is that 



THE DOLLAR, OR UNIT OF VALUE. 49 

silver is too bulky to be made a legal tender for 
the payment of large amounts ; that it is conve- 
nient for the fractional parts of a dollar, but that 
it should not be made the unit of value. 

Others have contended that gold should be 
made the unit for the measure of value ; that a 
certain number of grains of gold should be con- 
sidered a dollar ; that gold should be a legal ten- 
der for the payment of all debts ; that the standard 
should never be changed, and that silver should be 
legal tender for parts of dollars only. 

Still others have argued that both should be 
standards of value. It is said that as we have the 
rod for measuring land, the yard for cloth, the foot 
for boards, so we may have the gold eagle as a 
measure for large amounts, the silver dollar as a 
measure of less sums, and the copper cent as the 
measure of the smallest. In this case the amount 
of indebtedness which could be paid by the cheaper 
coins should be limited by law, or the transpor- 
tation might become a burden. 

But the objection to this theory of a double 
standard is that the relative prices of the three 
metals is continually changing. Hence, the anal- 
ogy of the rod, the yard, the foot, does not hold 
goSd in this case. 

After the gold mines of Australia and California 
were discovered, the relative value of gold, as com- 
pared with silver, in the markets of the world, was 
considerably decreased. 



50 POLITICAL ECONOMY. 

But when the mines of Nevada began to fur- 
nish such vast quantities of silver, the effect was 
exactly opposite, and silver became relatively 
very much the cheaper metal. Hence, it will be 
perceived that when there are two standards of 
value there should be an adjustment of the ratio 
of quantity whenever the commercial value of 
the two metals differs essentially from the legal- 
tender value. Slight differences will not prevent 
their common circulation. But if there is much 
discrepancy ; if a dollar in silver will pay the same 
amount of debt as a dollar in gold, and at the 
same time a dollar of silver can be purchased 
cheaper than a dollar in gold, then debts will be 
paid with silver dollars, and gold will be sold to 
purchase the silver. In other words, the cheaper 
dollar will in time drive the dearer from circula- 
tion. 

The weight of a gold eagle in the currency of 
the United States is 258 grains, nine-tenths pure 
gold. The weight of the silver dollar is 4121^ 
grains, nine-tenths pure silver. The remaining 
tenth is composed of an alloy of harder metal. 
This ratio was established long ago, and was based 
upon the relative commercial value of the two 
metals in the markets of the world. But since 
that time there have been great and rapid changes. 
Hence there should be a readjustment of the 
ratio of the weight of gold and silver dollars. 
The only change necessary is to make the silver 



THE DOLLAR, OR UNIT OF VALUE. 5 1 

dollar heavy enough to be worth one tenth part of 
a gold eagle, to limit the amount for which silver 
shall be a legal tender, to repeal the present law 
which compels the coinage of 2,000,000 silver 
dollars per month, and let the coinage be free and 
unlimited in amount. But if the present law is 
continued, the silver will drive the gold from cir- 
culation. 

Seigniorage is the charge which the government 
makes for coining money. The United States 
government, and that of Great Britain, coin gold 
for individuals free of charge ; but there seems to 
be no good reason why the government should 
coin money for citizens any more than it should 
make shoes or hats free of charge. 

If a small percentage is deducted to pay for 
coining money, it will be worth more than un- 
coined metal. Hence, debts due to foreigners 
will be paid in bullion, and coins will be retained 
at home. Thus, also, uncoined gold and silver 
will be used in the arts instead of coin, because it 
will be cheaper. But if no charge for coinage is 
made by the government, the mint will be kept at 
work recoining money a large part of the time. 

The theory in regard to coinage, which practice 
will probably demonstrate, is this : that the mint 
should be under the direct control of the govern- 
ment ; that gold and silver should be coined for 
individuals when presented in proper quantities ; 
that an amount sufficient to pay the expense of 



$2 POLITICAL ECONOMY. 

coinage should be charged by the government ; 
that the ratio between the weight and fineness of 
gold and silver should be properly adjusted, so that 
the commercial value and the mint value should be 
"as nearly equal as practicable ; that gold should be 
a legal tender for any amount ; that silver should 
be a legal tender for a limited amount ; that all 
restrictions on the amount to be coined should be 
removed ; and that demand should regulate the 
supply of gold and silver coins. 



CHAPTER XVII. 

BANKS. 

A BANK is an establishment for the custody, 
loaning, exchange, and issue of money. As there 
are four distinct kinds of business done by banks, 
they are usually divided into four classes. 

1. A da7i^ of deposit is one in which money is 
deposited for safe keeping. Very few modern 
banks, however, confine their business simply to 
receiving deposits. 

2. A bank of discount is one from which money 
is loaned. Usually these two classes are united. 

3. A bank of exchange is one from which drafts, 
checks, certificates, and bills of exchange are issued 
to facilitate the transmission of funds. 

4. A bank of issue is one from which demand 
notes are issued and circulated as money. 



BANKS. 53 

History of hanks. There were banks in ancient 
Greece and Rome. Their business corresponded 
very nearly with that of modern private bankers. 
They received money on deposit, paying a low rate 
of interest, and loaned it to other parties at a 
higher rate. They also issued bills of exchange ; 
but they did not issue demand notes for circula- 
tion as money. There was, however, no great 
banking system like that of the present time. 

When civilization was overthrown by hordes of 
barbarians from the north, the Roman system of 
finance was destroyed ; and from that time till the 
twelfth century there were neither banks nor 
bankers worthy of the name. But when civiliza- 
tion began to revive, the financial system also 
improved. 

The Bank of Venice was established about the 
middle of the twelfth century. In the year 1156, 
a forced loan was levied, upon which interest at 
four per cent was to be paid, and a chamber of 
loans was established for the management of the 
debt. This chamber of loans finally became the 
Bank of Venice, which continued in existence more 
than six hundred years. 

The Bank of Barcelojia was established in 1401, 
and was called the table of exchange. It received 
deposits and issued bills of exchange. 

The Ba7ik of Genoa was established in 1407 ; 
the Bank of Amsterdam m 1635. 

All these banks were organized for the purpose 



54 POLITICAL ECONOMY. 

of assisting in the management of the public debt, 
but they soon became places for the deposit of 
money by private parties. 

Afterward, when those who had money in the 
bank wished to make payments, they gave orders 
on the bank, and transfers of credit were made on 
the books without any payment of money. This 
was the origin of bills of exchange, drafts, and 
checks. These were simple orders for the pay- 
ment of money. 

Later, when banks were established in various 
commercial cities in different countries, debts 
were paid by means of bills of exchange, in foreign 
nations, by the aid of banks. 

At first, all the coins deposited were kept in the 
bank, and a small charge was made for keeping the 
funds, for it was found that the average amount 
of deposits in ordinary times was about equal to 
the sum of the withdrawals. And it was also 
learned, by experience, that loans of deposits could 
be made for short time, and when emergency came, 
the loans could be called in without much delay. 
And thus at length it was found by experience 
that quite a large proportion of the deposits could 
be loaned, and an income obtained, without any 
danger of ever being short of funds to meet the 
demands of depositors. 

Thus it will be perceived that the establishment 
of banks was the result of an effort to meet a pub- 
lic want. 



BANKS. 55 

The Bank of England. The Bank of England 
was organized in 1694. Previous to the accession 
of William and Mary to the throne of England, the 
payment of the national debt was supposed to de- 
volve upon the monarch. But William took a 
different view of the subject. He assumed that 
the debt was contracted for the benefit of the 
people, and should be paid by the people. 

Six years after the revolution of 1688 the Bank 
of England was established, with a capital of 
1,200,000 pounds sterling. The capital was all 
invested in government securities, for which the 
bank received interest at the rate of eight per 
cent annually. The bank assumed the responsi- 
bility of paying interest on the public debt, for 
which it enjoyed certain exclusive privileges. 

The capital stock has been increased from time 
to time, but usually the whole has been invested 
in government securities. 

From the time of its organization till the pres- 
ent day the Bank of England has served as a grand 
regulator of the currency, not only of Great Bri- 
tain but of the whole civilized world. When s:old 
begins to flow out of England, the rate of interest 
is increased until the exportation is checked. 
When specie begins to return toward London the 
rate is reduced. 

Some eminent financiers have contended that 
there ought to be a mammoth bank in the United 
States, sufficiently strong to regulate the rate of 



56 POLITICAL ECONOMY. 

interest in this country, and thus prevent the 
excessive exportation of specie. 

For centuries London has been the commercial 
centre of the business world, and the Bank of 
England has been the great heart of financial cir- 
culation. But some sanguine Americans believe 
that the time will come when the seat of the 
financial empire will be transferred to New York. 
Time and circumstances will determine this ques- 
tion. Financial centres are the results of adequate 
causes and not of accidental circumstances. 



CHAPTER XVIII. 

BANKS OF THE UNITED STATES. 

Soon after the commencement of the American 
revolution. Congress began to issue what was 
called continental money — paper money. This 
issue was rapidly increased until more than ^300,- 
000,000 were in circulation. The result was what 
might have been expected. The value of the 
revolutionary currency decreased until it became 
almost entirely worthless. 

Under such circumstances it became absolutely 
necessary that there should be some kind of finan- 
cial legislation to save the colonies from absolute 
bankruptcy. After considerable delay and a great 
deal of discussion, the last day of the year 1781 
Congress incorporated — 



BANKS OF THE UNITED STATES. 5/ 

The Bank of North America. This bank was 
organized with a capital of ^400,000, of which 
the government subscribed ;^250,ooo. By owning 
more than half the stock, the government had a 
controlling interest. The bank was located in 
Philadelphia, and a charter was obtained from 
Pennsylvania, in addition to that from Congress. 
Its circulating notes were made receivable by the 
government for taxes, duties, and debts due the 
United States. It exerted an important influence 
on the finances of the country during the war for 
independence. Some have even supposed that the 
war could not have been brought to a successful 
termination without the aid derived from the Bank 
of North America. 

The Bank of the United States. In December, 
1790, Alexander Hamilton, then Secretary of the 
Treasury, submitted to Congress his celebrated re- 
port recommending the establishment of a national 
bank. The project was strenuously opposed by 
able men in both houses on constitutional grounds. 
But in spite of opposition, the Bank of the United 
States was chartered in 1791, with a capital of ten 
millions, two millions of which were subscribed by 
the United States. 

The capital stock was payable one fourth in 
specie, and three fourths in public securities. 
There were twenty-five directors, one of whom 
was chosen president. 

The circulating notes were redeemable in coin, 



58 POLITICAL ECONOMY. 

and receivable for government dues. It was char- 
tered for twenty years. 

The friends of the bank contended that it ex- 
erted a beneficial influence in establishing the 
credit of the United States, and in promoting a 
stable financial system in the nation. They also 
asserted that there was ample authority in the 
constitution for the charter of the banking associ- 
ation, but the enemies of the bank contended that 
Congress had no authority to grant such a charter, 
that it established a monopoly injurious to the 
community, and that it was a constant menace to 
the liberties of the people. 

Politicians, taking advantage of the ignorance of 
the people in regard to financial affairs, excited the 
prejudice of the masses against the bank inevery 
way possible. Time seemed to increase rather 
than diminish the opposition. The result was, 
that when an application was made for a re- 
newal of the charter, the measure was defeated in 
Congress, and the bank was compelled to wind up 
its affairs in 1811, twenty years after its organi- 
zation. 

The average dividend for the whole twenty years 
which was paid to the stockholders was about 
eight and one third per cent. At the final settle- 
ment, the stockholders received about eight and 
one half per cent more than the par value of the 
stock. 

The calm judgment of history will probably be. 



BANKS OF THE UNITED STATES. 59 

that this first bank of the United States was well 
managed by its officers ; was profitable to the 
stockholders ; was useful to the government ; was 
beneficial to the people. 

But this bank should not be confounded with 
the one which will next be described, which was 
very differently managed.^ 

The second Bank of the United States. The 
charter of the first United States bank expired in 
181 1. The second war with England commenced 
in i8r2. During this war the finances of the nation 
became very much deranged, as is usually the case 
in time of war. It was then argued that another 
bank must be organized in order to remedy the 
existing evils. Even some who had strenuously 
opposed the re-charter of the old bank became 
champions for the charter of the new. They 
asserted that the force of circumstances and the 
logic of events justified their change of opinion and 
action. 

After much debate, in 1816, the second Bank of 
the United States received a charter for twenty 
years. Its capital stock was thirty-five million 
dollars, of which the United States subscribed 
seven millions, and paid the amount in five per 
cent government securities. 

The bank had branches in several of the large 
cities. These banks collected the revenue, re- 
ceived the deposits, and paid the debts of the 
government. 



60 POLITICAL ECONOMY. 

General Jackson and his party opposed the re- 
charter. Giants in Congress were opposed to 
each other, but the opponents of the bank suc- 
ceeded in preventing its re-charter, and it expired 
by Hmitation in 1836. 

When the aEairs of the bank were settled, and 
its debts all paid, there was nothing remaining 
for the stockholders. The whole of the capital 
stock had been lost. The state of the bank was 
even worse than its most bitter enemies had sup- 
posed. 

The history of this contest will be found in 
Thomas H. Benton's Thirty Years' View. It is 
well worth the careful study of every person inter- 
ested in financial affairs. 



CHAPTER XIX. 

STATE BANKS. 

In the early years of the republic, there was 
considerable opposition to the charter of national 
banks by the Congress of the United States. But 
there was no doubt in regard to the constitutional 
right of the State legislatures to authorize the 
organization of State banks. 

The first State bank was established in Massa- 
chusetts in 1784, only about three years after the 
charter of the Bank of North America. From 
that time the number increased rapidly, and soon 



STATE BANKS. 



6i 



they became important factors in the financial 
system of the United States. 

But there were serious objections to these State 
banks of issue. There was no uniformity. Each 
State had its own banking law, and each different 
from every other. In the older States, where the 
methods of doing business were clearly defined, 
where capital was plenty, where credit was firmly 
established, the laws authorizing the establish- 
ment and regulating the management of the 
banks were comparatively strict. But in the newly 
settled States, where money was scarce, where the 
rate of interest was high, where prices were in- 
flated, where everything was unstable, where there 
was a popular demand for an increase of circula- 
tion ; the provisions of the banking laws were less 
guarded. The results were what might have been 
expected. There were numerous failures of the 
State banks. Even in the most prosperous times, 
in States where the laws were the most stringent, 
failures of banks were not uncommon. But in the 
West and South the failures were far more numer- 
ous. The aggregate loss was very great. In times 
of financial panic the results were extremely dis- 
astrous. Stockholders, depositors, and bill-holders 
were common sufferers. As there was no national 
supervision of the banks of the United States 
under the old State bank system, it is very difficult 
to obtain accurate statistics. But it is stated upon 
what seems to be good authority that no less than 



62 POLITICAL ECONOMY. 

one hundred and ninety-five failed and became 
bankrupt between 1811 and 1820. In the crash of 
1839-40 about one hundred and eighty banks were 
totally wrecked, and their circulation became 
utterly worthless. 

These banks were required to redeem their 
circulating notes at their counters on demand, and 
were obliged to keep a certain amount of specie 
on hand, at all times, for that purpose. 

But most of the banks were permitted by their 
charters to issue a larger amount of circulating 
notes than the total of their capital stock — in 
some States, three or even four times as much. 
When public confidence was not disturbed, when 
there was no special demand for specie for expor- 
tation, there was no difficulty in redeeming the 
notes as they were presented. 

But when public confidence was shaken, the 
people demanded specie for their bank notes. But 
there was no possibility of meeting the demand. 
Suspension of specie payments followed, a financial 
panic was precipitated, the banks failed, and the 
people suffered. 

Thus there was undue expansion, inflation, 
speculation ; and then contraction, collapse, bank- 
ruptcy. These were the logical results of such a 
system of banking. 

There was no uniformity of organization of the 
State banks, because they were established accord- 
ins: to the laws of the several States. There could 



STATE BANKS. 63 

be no general supervision, for they were local insti- 
tutions, the general government had no control 
over them. There was no effectual means of 
detecting counterfeits, because there were so many- 
different issues that no one but an expert could 
distinguish the spurious from the genuine. There 
was no remedy for the depreciation of the value 
of the circulating notes, for there was no guaranty 
of final redemption. There was no method of 
inspiring public confidence in the solvency of the 
banks, for there had been so many failures that the 
people distrusted the whole of them. There was 
no assurance that specie payment would continue, 
for the amount of circulation greatly exceeded the 
total capital stock, and a financial panic would at 
any time precipitate a suspension of specie pay- 
ment. There was no uniformity in the value of 
the bank notes, because no one knew the financial 
standing of the banks outside of his immediate 
location; hence there was great difficulty in set- 
tling indebtedness between different localities. 
Bankers sometimes charged a large per cent for 
exchanging money. 

Statesmen and financiers saw all these difficul- 
ties, but they did not apply the proper remedies. 
The evils of the system had grown up with the 
system, and the great mass of men supposed that 
they were inseparable from it. Many men feared 
to place the banking system under the control of 
the general government, lest there should be too 



64 POLITICAL ECONOMY. 

great centralization of power. Others sincerely be- 
lieved that Congress had no constitutional author- 
ity to establish and control the banking system. 

Such was the financial state when the civil war 
commenced in 1 86 1. In a few months all the 
banks throughout the country suspended specie 
payment. The system proved to be inadequate 
for the emergency. The government needed 
money for the purpose of carrying on the war, and 
it was proposed to obtain a large amount through 
the creation of national banks. A law was en- 
acted by Congress, authorizing the formation of 
national banks, a certain portion of whose capital 
stock should be invested in government bonds. 
And State banks were permitted to reorganize as 
national banks under very favorable circumstances. 
At the same time the continuance or establishment 
of State banks of issue was discouraged, by render- 
ing them unprofitable to their stockholders. 

The government having the constitutional right 
of taxation, a tax of ten per cent was levied on all 
the circulating notes issued by the State banks. 
The effect of this was to cause all these banks to 
close up their affairs, and to give up their charters, 
or cease issuing circulating notes ; or to reorganize 
as national banks. But the banks were allowed 
so favorable terms for changing their charters, that 
the most of them were very glad to reorganize 
under the national banking act. Had the change 
been made during a time of peace, it might have 



STATE BANKS. 65 

produced prolonged discussion in regard to the 
constitutional right of the general government to 
control the banking system. But the people were 
so interested in the war and the events connected 
with it, that they troubled themselves very little 
in regard to the question whether the State or the 
nation should have control of the banks. 

In this way, the control of nearly the whole 
banking system was transferred from the States to 
the general government, with scarce any oppo- 
sition. 

In some States, banks are still organized under 
State laws, but they do not issue and circulate 
notes. This is specially true in the State of New 
York. 

As the national debt and the amount of govern- 
ment bonds diminishes, as the premium on the 
bonds becomes greater and the income less, the 
tendency to organize under State authority will 
become stronger. 

And it may be well to remember that the only 
restriction upon the S:;ate banking system would 
be removed by the repeal of one clause of the in- 
ternal revenue act. Let the tax on the circulation 
of the State banks be removed, and there would 
be danger of a return to the old system, because 
it is thought that banking under most of the State 
laws, provided that the banks could issue circulat- 
ing notes without taxation, would be more profita- 
ble than under the national banking act. 



^6 POLITICAL ECONOMY. 

But those who remember the inconveniences, 
the disadvantages, the losses incident to the old 
system of banking, will not care to see it again 
established in this country. 



CHAPTER XX. 

SAVINGS BANKS. 

Banks of loan have always been considered 
commercial institutions, designed to aid business 
men in financial affairs. One very important use 
of these banks is to receive the surplus money of 
the business men of the community, and loan as 
much as they can spare safely to those who need it. 
In ordinary times the average amount of daily de- 
posits is about equal to that of the withdrawals. 
And the best financiers usually consider that about 
two thirds of the deposits may be safely loaned, 
provided that the loans are for a short time, on per- 
sonal security, which can readily be converted into 
money if payments are not made at maturity. 
Thus, through the agency of the banks, a large 
share of the surplus money of the community may 
be collected, and about two thirds of it used. In 
this way the banks receive interest on a large 
part of their deposits, and business men are ac- 
commodated with loans when they need money. 

But the depositors receive no interest ; and they 
do not expect it, because the money is placed in 



SAVINGS BANKS. 6/ 

the banks for a few days only, and for the deposi- 
tor's convenience. The arrangement is satisfac- 
tory and advantageous to both parties. 

But these banks have been found mainly ser- 
viceable to business men. If laboring men have 
more money than they need for immediate use, they 
wish to place it where they can obtain a reason- 
able amount of interest. Banks of issue and dis- 
count have never met this demand of the laboring 
classes. 

To supply this want, savings banks were organ- 
ized toward the close of the eighteenth century. 
These banks were designed to receive small 
amounts and pay interest on balances, compound- 
ing the interest periodically, if left in the bank. 
Small amounts were received in order to induce 
laborers to save the surplus of their wages. In- 
terest was allowed on small sums in order to induce 
them to deposit fheir earnings where they would 
accumulate. Compound ifiterest was allowed in 
order to induce them to leave the money in the 
bank a long time, on account of the more rapid 
increase by compounding. 

The first bank of this kind was organized at 
Hamburg in 1778 ; the next at Berne in 1787. 

Savings banks were first established in England 
early in the present century. 

The first savings bank in the United States was 
established in Philadelphia in 18 16; the next in 
Boston the same year ; the next in New York in 



68 POLITICAL ECONOMY. 

1 8 19. Since that time their number has rapidly 
increased. 

Some of these savings banks are organized under 
general laws permitting their establishment. Oth- 
ers have charters granted by the State legislatures, 
allowing them to enjoy special privileges, and com- 
pelling them to conform to certain rules and regu- 
lations. But all the savings banks of the United 
States are established in accordance with State 
legislation, are subject to State supervision, and 
are controlled by State authority. Hence, while 
they possess the same .general features, they dif- 
fer in some minor characteristics. 

They receive small amounts, sometimes as small 
as five cents. They loan money on ample security, 
largely on mortgages. They declare dividends 
semi-annually, some even quarterly. They com- 
pound the interest whenever a dividend is declared, 
provided that it is left in the bank. They give a 
pass-book to each depositor, which must be pre- 
sented when a deposit is made or money is with- 
drawn, in which there is a record of every debit 
and credit transaction. The record in the pass- 
book is a duplicate of the account with the deposi- 
tor in the books of the bank. Notice may be 
required from the depositors when money is to be 
withdrawn. 

These banks are organized by corporators, man- 
aged by trustees, and owned by the depositors. 

They have usually been well managed, and have 



SAVINGS BANKS. 69 

been very beneficial to the laboring classes where 
they have been located. 

In Great Britain a system of savings banks is 
connected with the post-office department, which 
has proved to be a great convenience and benefit. 

Efforts have been made in the United States 
Congress to establish a similar system in this 
country. No doubt it would be beneficial to the 
laboring men and women of the nation ; and an 
expression of public opinion, in the form of peti- 
tions, should be placed before Congress, so that 
our legislators may understand the wishes of the 
people. Such banks would be absolutely safe and 
extremely convenient. 

The amount to be deposited at one time should 
be limited, and the maximum by each depositor 
should also be limited. 

Every post-office above a certain grade should be 
a government savings bank. Money deposited in 
one office should be payable at any other. Suffi- 
cient notice should be required, so that money could 
be obtained from other offices when necessary. 

The objection has been made that such a sys- 
tem would injure the existing savings banks ; but 
well-informed business men think that there is 
nothing to fear from this cause. 



70 POLITICAL ECONOMY. 

CHAPTER XXL 

UNITED STATES NATIONAL BANKS. 

The principal corporate powers of national banks , 
granted by the national banking act, are as fol- 
lows : — 

1. To adopt and use a corporate seal. 

2. To have succession for twenty years. 

3. To make contracts. 

4. To sue and be sued. 

5. To select directors and other officers, and 
define their duties. 

6. To adopt by-laws not contrary to the bank- 
ing laws. 

7. To discount notes ; to receive deposits ; to 
buy, sell, and exchange coin and bullion ; to loan 
money ; to obtain and issue circulating notes. 

Organization of National Banks, i. Articles of 
association must be drafted and approved by the 
Comptroller of the Treasury. 

2. The capital stock must be subscribed. 

3. The stockholders must choose a board of di- 
rectors, not less than five in number. 

4. The directors will select one of their number 
for president, and appoint other necessary officers. 

5. The officers will purchase a certain amount 
of interest-bearing government bonds, and deposit 
them with the Treasurer of the United States at 
Washington. 



UNITED STATES NATIONAL BANKS. /I 

6. The Comptroller of the Treasury will return 
to the bank ninety per cent of the par value of the 
bonds in unsigned bank notes, upon which there 
is a certification that bonds are deposited in the 
Treasury to secure their redemption. 

7. These notes may then be signed by the pres- 
ident and cashier and circulated as money. 

Banking is free. There is no monopoly of priv- 
ileges ; no charter to be secured ; no legislation 
necessary. Any five citizens, by conforming to 
the provisions of the general banking law of the 
United States, may form a banking association at 
any time. 

Any person rnay become a stockholder of a 
national bank by subscribing for a share of the 
capital stock when a bank is organized ; or he may 
purchase stock at public or private sale, just as 
freely as he can purchase merchandise. Any man, 
woman, or child who has a hundred dollars may 
buy a share of bank stock and thus become a 
stockholder. Hence the charge that the banking 
system is a monopoly is unjust and untrue. 

Capital Stock. — The capital stock of a national 
bank cannot be less than two hundred thousand 
dollars in cities of fifty thousand inhabitants ; and 
not less than one hundred thousand in cities of 
less than fifty thousand inhabitants. But there 
is a provision in the banking law that the Secre- 
tary of the Treasury may authorize the organiza- 
tion of a bank with a capital of not less than fifty 



72 POLITICAL ECONOMY. 

thousand dollars in any city or town with less 
than six thousand inhabitants, if he thinks the 
wants of the public demand its establishment. 

At least half of the capital must be paid in 
before commencing business ; and the remaining 
portion must be paid in at the rate of not less than 
one fifth monthly. No increase nor decrease of 
the capital can be made without permission from 
the Comptroller. The capital stock is divided into 
shares of one hundred dollars each. Each share 
entitles its holder to one vote for the choice of 
directors, and in regard to other matters which 
may properly come before the stockholders. Each 
shareholder is responsible for the debts of the bank 
to an extent equal to the amount of his stock. In 
other words, a holder of bank shares is liable to 
lose his stock and an equal amount of his private 
property, if necessary to satisfy the demands made 
by the creditors of the bank. 

Should the capital stock become impaired, by 
losses or otherwise, it must be made good by an 
assessment on the stockholders, within three 
months after notice is received from the comp- 
troller. 

Each bank is required, before making a dividend, 
to set aside as siirpliis one tenth of the net earn- 
ings since the last dividend. This surplus must 
be set apart whenever a dividend is made, until 
the amount is equal to one fifth of the original 
capital. This can be used for ordinary banking 



UNITED STATES NATIONAL BANKS. 73 

purposes, but can not be taken for the payments 
of dividends. It can be used only to charge off 
losses. Thus it will be seen that careful provision 
is made for strengthening the bank by providing 
for a large amount of surplus capital. Ample 
authority is given the Comptroller to insure the 
fulfilment of all these conditions in regard to 
capital stock, so that it is practically impossible to 
organize a national bank upon fictitious capital, as 
was sometimes done under the State banking 
system. 

Directors. — The shareholders choose a board 
of directors ; not less than five in number, each 
of whom must be a citizen of the United States ; 
and three fourths of whom must be citizens of the 
State where the bank is located. Each director 
must own at least ten shares of the capital stock 
of the bank. To all these things he must make 
oath, and also make and transmit to the Comp- 
troller an oath that he will faithfully administer 
the affairs of the bank, and that he will not 
knowingly violate, or permit to be violated, any of 
the provisions of the Banking Act. 

The directors select one of their number for 
president, also appoint a cashier and other ofificers. 
All the affairs of the bank are managed by the 
officers subject to the board of directors. Hence 
the reason for having each pecuniarily interested 
by owning at least ten shares of the stock. 

They are required to be citizens of the United 



74 POLITICAL ECONOMY. 

States to prevent foreigners from controlling our 
banking system. 

Deposit of Bonds. — Each bank is obliged to 
deposit with the Treasurer at Washington a cer- 
tain amount of interest-bearing United States 
bonds. These are marked as the property of the 
bank, registered in the books of the Treasury 
department, placed in the Treasury, and exam- 
ined twice a year by an agent of the bank. The 
Comptroller sends to the officers' of the bank 
ninety per cent of the par value of the bonds, in 
unsigned bills. The bonds are the property of 
the bank, but are deposited with the United 
States as security for the redemption of the 
circulating notes. The Treasurer forwards to the 
bank a check for the interest when due. 

If the bank fails to redeem its notes, the govern- 
ment sells the bonds and redeems them, so that 
no loss can be sustained by the bill-holders. If a 
bank fails and becomes bankrupt, its circulating 
notes are perfectly good, because they will be 
redeemed by the United States government. 
Hence, during more than twenty years, since the 
National Banking Act was passed, not one dollar 
has been lost by bill-holders on account of the 
failure of a national bank. But under the old 
State banking system, millions were lost, by bank 
notes becoming worthless in the hands of the 
holders, mostly the poorer class of persons. 

Hence it will be readily perceived that the de- 



UNITED STATES NATIONAL BANKS. 75 

posit of bonds for the security of the bill hold- 
ers is a very important feature of the Banking 
Act. 

But it has been asked what will be done when 
the debt of the United States is all paid. Then 
of course there will be no. United States bonds to 
deposit. They are already becoming scarce, and 
the income from them is very small at the present 
market value. 

In answer to this question, it may be said. Let 
the banks deposit other securities, ample in amount, 
and satisfactory to the Comptroller, instead of 
United States bonds. Then we shall have a 
paper currency based on real value. 

Legal Tenders. — Every national bank is required 
to receive at par the notes of any other national 
bank in payment of debts. They are receivable 
by the government for all taxes and other dues, 
except duties on imports, and are payable by the 
government for all demands except interest on the 
public debt. 

It has sometimes been asked why these excep- 
tions should be made. The reasons are obvious. 
In order to facilitate" the sale of the government 
bonds, it was necessary to make them desirable as 
an investment not only to citizens of our own 
country, but to foreigners as well ; and therefore 
the interest was made payable in a currency sta- 
ble in value and good in any country, that is, in 
specie. And in order to obtain coin for the pay- 



j6 POLITICAL ECONOMY. 

ment of interest on the public debt and of the 
government employes in foreign countries, it was 
provided that the duties on imports should be col- 
lected in specie. 

Redemption of Circidating Notes. — I. Every 
national bank must redeem its notes at its own 
counter in lawful money, at par, on demand. 

2. The notes of all closed banks must be re- 
deemed by the Treasurer of the United States. 

3. All worn, mutilated, or defaced notes may be 
forwarded to the Treasury, for redemption, by an 
assistant treasurer. 

4. Bank notes in sums of one thousand dollars, 
or any multiple thereof, will be redeemed by the 
Treasurer whenever presented. 

This system of redemption renders the circu- 
lating notes of the national banks always equal in 
value to Treasury notes. It also serves to keep 
the circulating notes whole and clean. When 
there is no suspension of specie payments, these 
bank notes will be at par with coin, and will be 
equally valuable in any part of the nation. 

Destruction of Notes. — Notes of closed banks, 
and mutilated notes, redeemed by the Treasurer, 
are destroyed in presence of an agent of the Sec- 
retary, the Treasurer, the Comptroller, and the 
bank. And their destruction is certified by each 
of these four men. 

Loajis. — National banks are prohibited from 
loaning money, — 



UNITED STATES NATIONAL BANKS. 77 

1. On real estate security. 

2. On security of their own capital stock. 

3. On security of bank or treasury notes. 

No bank is allowed to loan to any one party an 
amount greater than one tenth of its capital stock. 

Statements. — Detailed statements of the con- 
dition of each bank must be made to the Comp- 
troller at least five times a year. These state- 
ments must be verified by the oath of the president 
or cashier, and attested by three of the board 
of directors. They are also requited to report 
to the Comptroller, twice a year, the amount of 
dividends declared, and the amount of profits in 
excess of dividends. Special agents of the Comp- 
troller examine the banks when thought necessary. 

Taxes. — The national banks pay to the United 
States government a tax of one per cent upon the 
average amount of their circulating notes, and 
they are also subject to local taxation, like any 
other corporation. 

National Depositories. 

These banks are also employed as financial 
agents of the United States government where 
there is not a sub-treasury. They receive and pay 
out money for the government. 

Such is a brief explanation of the national 
banking system, as condensed from the Report of 
the Comptroller of the Currency. 

The design of the law is that the banks shall 



78 POLITICAL ECONOMY. 

be safe, strong, conservative associations ; that 
they shall be profitable to the shareholders, bene- 
ficial to the community where they are located, 
and co-operate with the government whenever 
financial aid is needed. The system embodies the 
condensed experience of the bankers of all past 
ages ; and is pronounced, by those capable of 
judging, the best system of banking which the 
world has ever known. 

It is certainly to be hoped that this nation will 
never return to the old State banking system, with 
all its disadvantages, defects, risks, and losses. 



CHAPTER XXII. 

TREASURY NOTES. 

Besides coin and bank notes there are now in 
circulation, in the United States, treasury notes, 
which are commonly called by the people, " Green- 
backs," because the backs of the notes are green. 
These were issued during the civil war to meet a 
pressing necessity. When the banks closed their 
vaults, and were unable to redeem their notes in 
specie, gold and silver were hoarded and exported. 
Coin ceased to circulate as money, and was bought 
and sold in the market. The first effect was that 
small coins disappeared, and there was an absolute 
necessity for some kind of currency to represent 
parts of a dollar. 



TREASURY NOTES. 79 

To supply this demand the government issued 
fifty millions of fractional currency. This was 
paid out from the Treasury to meet the public 
expenses, and went into circulation among the 
people. 

But the wants of the government enormously 
increased. An army had to be raised, armed, 
equipped, clothed, fed; a navy had to be cre- 
ated, and numerous other payments had to be 
made. For these purposes there was need of more 
money. Specie ceased to be a circulating medium, 
and in its place was left a vacuum. The banks 
could not safely supply the demand. Hence, from 
time to time, the government issued treasury notes 
with which to pay the enormous expenses. These 
notes were simply promises that the government 
would pay the bearer so many dollars, — not at a 
certain time, not on demand, — but simply that it 
would pay. In order to cause these notes to cir- 
culate freely, they were made legal tenders for the 
payment of all demands both public and private, 
except interest on the public debt and duties on 
imports. 

These treasury notes were issued to meet a 
special emergency, and ought to have been re- 
deemed and destroyed when the emergency no 
longer existed. They were necessary for the suc- 
cessful prosecution of the war, but should have 
been gradually withdrawn from circulation when 
the war ended. They served a useful purpose 



80 POLITICAL ECONOMY. 

during the dark days of the rebellion, but they 
should have disappeared with the other extraordi- 
nary circumstances connected with it. 

After peace was established, a law was enacted 
directing the Secretary of the Treasury to redeem 
and destroy ^4,000,000 of these treasury notes 
every month. But soon there was a clamor from 
the speculators, and the destruction was sus- 
pended. This rendered the return to specie pay- 
ments vastly more difficult. The bank notes were 
all redeemable in lawful money — greenbacks — 
and the greenbacks were payable in specie. 
Hence the whole weight of resumption rested 
upon the United States Treasury ; therefore it 
was necessary that a vast amount of coin should 
be accumulated in the vaults of the Treasury 
before resumption could be safely attempted. 
And now it is equally necessary to keep a large 
balance on hand continually, in order to prevent a 
suspension of specie payments by the United 
States Treasury. This would be a national dis- 
grace, as well as a public calamity. 

While we export more commodities than we im- 
port ; while the balance of trade is in our favor ; 
while specie is flowing into the United States, — 
there can be no difficulty in maintaining specie 
payments. But let the balance of trade be against 
us ; let bankers and brokers find it profitable to 
export coin, — and there will be a demand for the 
redemption of the outstanding paper currency. 



TREASURY NOTES. 8 1 

There will be none too much reserve to meet the 
emergency. 

There is now in circulation about ;^3 50,000,000 
in treasury notes, and about an equal amount of 
national bank notes, all redeemable by the United 
States, and there must be many millions of specie 
in the Treasury when payment is demanded. 

When these treasury notes are redeemed and 
destroyed, this immense accumulation of coin can 
be used for the payment of the public debt. The 
management of the government finances will then 
become vastly more easy. It will be necessary 
simply to levy a tax sufficient to pay the fixed 
charges and the current expenses of the govern- 
ment, and pay the bills when they become due. 

There will be no fear of a suspension of specie 
payment, and no hoarding of coin to meet such 
an emergency. 

But it may be asked, "Who will supply the 
deficiency in the paper currency produced by the 
redemption and destruction of the greenbacks .? " 

The answer is obvious : the demand will pro- 
duce a supply. Let the withdrawal of the treas- 
ury notes from circulation be gradual, and there 
will be an expansion of the national bank circula- 
tion sufficient to meet the wants of the people 
without any disturbance of our financial system. 
Let the banks issue all the paper currency, and 
let every paper dollar be secured by the deposit of 
ample security in the United States Treasury, then 



82 POLITICAL ECONOMY. 

we shall have a financial system which will be 
stable. 

But it is sometimes argued that the government 
saves paying interest on these treasury notes while 
they are circulating as money. This is true ; but 
such an advantage will not compensate for the 
disadvantages, the risks, and the perils of irre- 
deemable paper. 

It will be remembered that these treasury notes 
are issued by the government in payment for sup- 
plies or services. They are merely evidences of 
debt, secured by nothing except the promise of 
the government to pay the bearer. But there is 
no legal power to collect a debt due from the 
United States. 

Then, also, there is no limit to the amount of 
treasury notes except the votes of politicians. 
The amount may be increased or diminished with- 
out any regard to the financial wants of the coun- 
try, whenever it will favor the dominant party. 
If money can be manufactured by printing pieces 
of paper, there is great danger of an over-issue, 
so that there wiU be depreciation of value. 

Treasury notes are sometimes necessary in an 
emergency, but they should be withdrawn from 
circulation as soon as practicable after the emer- 
gency is passed. 



EXCHANGE. 8$ 

CHAPTER XXIII. 

EXCHANGE. 

Except in case of primitive barter, there can be 
no exchange of commodities without some measure 
of value and some medium of exchange. 

The nature and uses of three classes of these 
mediums have already been explained, namely : — 

1. Specie, or com, which is the prime measure of 
value, and is recognized as a medium of exchange 
throughout the civilized world. 

2. Bank notes, which are used as substitutes for 
coins, and are representatives of real value. 

3. Treasury notes, which are promises of the 
government to pay the bearer real value, when 
presented at the treasury. 

These are now used interchangeably as money in 
the United States. But there is not sufficient cur- 
rency to meet the demand for mediums of exchange 
for the vast amount of daily commercial transac- 
tions. It would be absolutely impossible to trans- 
act the business of a single day if the money 
value had to be actually passed from debtor to 
creditor in every case. Hence, other methods 
have been employed, other mediums of exchange 
have been devised. 

Book Accounts. Men frequently need merchan- 
dise when they have neither coin, bank notes, nor 
treasury notes. In such cases commodities are 



84 POLITICAL ECONOMY. 

obtained on verbal promises to pay. The purchaser 
buys the goods, the creditor makes a charge in 
his books, and the money or some other com- 
modity is paid by the debtor at the time agreed. 

The medium of exchange in this case is the 
verbal promise of the debtor. The aggregate of 
such transactions is enormous. It is a convenient 
method of doing business, provided that the credi- 
tor is not in immediate need of the pay for his 
merchandise. But if he does need his pay before it 
becomes due, the account is not in proper form to 
sell readily to a third party. This cause produced 
its legitimate effect centuries ago, and led to the 
adoption of 

Promissory Notes as a medium of exchange. 

If a man wishes to purchase commodities, he 
may write, sign, and deliver to the creditor a 
promise to pay to him or his order a specified 
sum of money, at a stated time, or on demand, 
with or without interest, in exchange for the mer- 
chandise. This note then becomes the medium 
of exchange just as really as so many dollars in 
coin or bank notes. Such a note has a legal, 
commercial value. It is negotiable. It can be 
sold in the market. If the owner wishes to make 
use of the money before the note becomes due, 
he can dispose of it as he would any other prop- 
erty. Hence, written promises are better than 
verbal as mediums of exchange. They are not 
money, for they cannot be passed at their face 



EXCHANGE. 85 

value. They are not a legal tender, but they serve 
as mediums of exchange. Several technical terms 
are used in respect to notes, which may be ex- 
plained here. 

The maker of a note is the one who promises 
to pay the amount stated. 

TJie payee is the person to whom the money is 
payable. 

The holder is the person in whose possession it 
is legally held. 

Checks. Book accounts and promissory notes 
are inconvenient. Men wish to receive for com- 
modities money or something as good as money. 
So business men deposit their funds in some con- 
venient bank, and when they wish to purchase 
merchandise they give an order to the other party 
to obtain his pay from the bank. This order for 
the payment of money is called a check. 

The one who makes and signs the order is called 
the drawer. 

The one who is directed to pay the money is 
called the drawee. 

The one to whom it is made payable is called 
the payee. If the payee makes the order payable 
to another by writing across the back, he is called 
the indorser7 The new payee is then called the 
indorsee. 

Certified Checks. Checks of individuals are 
good, provided that the drawer has the amount 
of funds in the bank. But the bank is only an 



S6 POLITICAL ECONOMY. 

agent, and will simply pay out the money of the 
depositor. Hence, in large transactions, most men 
prefer to know that the check will be cashed when 
presented. This is done in a very simple manner. 
The check is drawn like any other check, carried 
to the bank and stamped " certified," with the 
name of the bank and the date. This certification 
makes the bank responsible for the payment of 
the check when presented. Certified checks are 
considered preferable to uncertified ones, because 
the bank is responsible for their payment. 

Certificates of Deposit. But sometimes a man 
wishes to send money to another person at a dis- 
tance when he has no funds on deposit in the 
bank. In that case he cannot draw a check and 
send it away to pay the debt ; and he may not 
care to open a regular bank account. Under such 
circumstances he goes to the bank, deposits his 
money, and receives a " certificate of deposit," 
stating that he has deposited a certain amount of 
money in the bank, payable, when presented, to 
the person named. The bank is then responsible 
for the payment. 

Cashier s Dj^afts. There is still another method. 
If a person wishes to pay a debt in another city, 
he may step into a bank and buy a " cashier's 
draft," which is an order from one bank direct- 
ing another bank to pay to a specified individual 
the amount of money named. These cashier's 
drafts are negotiable anywhere, because the bank 



EXCHANGE. 8/ 

which issued them is responsible for their pay- 
ment. Thus, banks furnish facilities for balanc- 
ing the accounts between different localities. 

Drafts. If a merchant in Boston owes a thou- 
sand dollars to a man in New York, and another 
man in New York owes the merchant in Boston 
a thousand dollars, and both amounts are due the 
same day, the merchant in Boston writes an order 
addressed to his debtor, telling him to pay the 
thousand dollars to his creditor, and charge the 
same to his (the Boston man's) account. He 
sends this order to his creditor, who collects the 
money from the debtor. Thus the debts are 
cancelled, and no money is transported. Such 
an order is a little more formal than a check, and 
is called a draft. But it has the same nature and 
use. If the drawer and drawee live in different 
countries, the order is still more formal, and is 
called a bill of exchange. But it does not often 
happen that a man will have a debtor and a 
creditor for the same amount due at the same 
time, and both persons living in another place 
near each other. Hence, for a large part of the 
exchanges, other methods must be adopted. 

The aggregate annual exchange of commodities 
between two great neighboring cities is sometimes 
enormous. Hence a large amount of indebtedness 
will naturally mature in each city every day. If 
the debts of one city equal those of the other, no 
currency need be transported, provided that some 



B8 POLITICAL ECONOMY. 

means can be devised for cancelling the common 
indebtedness. This important service is performed 
by the banks located in the two cities. 

If a merchant in Boston wishes to collect a debt, 
which is due him in New York, he draws a sight 
draft on the debtor for the amount. A bank in 
Boston takes the draft, gives the merchant credit 
for it, forwards it to a bank in New York, and 
debits the bank for the amount. The New York 
bank collects the money, and credits the bank in 
Boston. 

What is true in this case is applicable to all other 
Boston creditors of parties in New York. Thus 
all the debts due in Boston from individuals in 
New York may be changed, by means of drafts, 
to deposits in the banks of Boston. 

In the same manner all the debts due from 
Boston to New York parties may be changed to 
deposits in the banks of New York. If the 
indebtedness is equal, then the debits will just 
cancel the credits. The drafts serve as mediums 
of exchange without any transfer of currency. 

But if Boston buys more of, than it sells to. New 
York, then the balance of trade will be in favor of 
New York. When the debts mature, Boston will 
owe New York more than New York will owe 
Boston. The difference must be paid in currency. 
Suppose the balance of trade is one hundred thou- 
sand dollars, and then suppose that drafts should 
be drawn in each of the cities for the whole 



RENT. 89 

amount of indebtedness, then there would be one 
hundred thousand dollars worth more of drafts in 
New York than there would be in Boston. In 
New York, therefore, there would be more than 
enough to meet the demand, and they would be 
cheaper; while in Boston there would not be 
enough, and they would be worth more than the 
face value. Thus it will be perceived that these 
various forms of business paper, representing the 
credit of individuals or corporations, are used 
extensively as mediums of exchange, and are em- 
ployed by means of the banks to cancel almost an 
incredible amount of debts annually. 

Now what is true in regard to the case supposed 
is applicable to all the world. The unit of cur- 
rency is always the measure of value ; but it is 
seldom the medium of exchange except to adjust 
the balance of trade. 

Many other things might be written in regard 
to exchange, but the above is thought to be suffi- 
cient for an elementary treatise. 



CHAPTER XXIV. 

RENT. 

Much has been written in regard to rent. But 
it is not the province of an elementary treatise to 
discuss disputed questions, or investigate exploded 
theories. 



90 POLITJCAL ECONOMY. 

Considering the views of Ricardo as substan- 
tially correct, the object of this chapter will be to 
make the subject as plain and simple as possible, 
regarding Ricardo's theory as the basis of the 
explanation. 

Rent is the compensation paid or received for the 
use of real estate. 

Rent is composed of three elements. 

The first is for the use of the betterments, which 
have been produced by the employment of labor. 
If a person erects buildings, makes fences, clears 
the forest, ploughs the ground, cultivates the soil, 
he ought to receive compensation from the man who 
enjoys the use of these betterments. This is an 
important element of rent. 

The second is that which results from the differ- 
ence in the productive power of the soil. 

When a new territory is discovered, no one owns 
the soil. That which will produce most with the 
least labor is first occupied, provided that all 
other circumstances are equal. As long as there 
is land enough of the first quality to be obtained 
without cost, no rent will be asked or paid, except 
for the use of the betterments which have been 
made. No man will rent land while he can ob- 
tain all he needs, of the same quality, without 
price. 

But when all the land of the first quality is 
preempted, then that of the second quality must 
be occupied. This second quality, not being so 



RENT. 91 

fertile, will produce less with the same amount of 
labor. 

The second element of rent is this difference of 
productiveness. 

It has been explained in the following manner : 
If an acre of land, of the first quality, produces 
ten bushels more corn annually than an acre of 
the second quality, with the same amount of labor, 
then the yearly rent of the first acre should be ten 
bushels of corn, as long as the second acre can be 
obtained for nothing. 

But when all the land of the second quality is 
preempted, then that of a third quality must be 
occupied. A certain amount of rent will then be 
demanded for the second quality, and a higher 
rate than before for the first. 

Thus if the third quality produces ten bushels 
less than the second, then the rent of the second 
will, be ten bushels annually, and that of the first, 
twenty bushels. 

And so it will be until all the land which can be 
obtained for nothing is taken. As the population 
becomes more dense, as the demand for home- 
steads becomes more imperative, less productive 
soil will be occupied, and the rent of the better 
portions will be correspondingly increased. 

This is the general theory of rent, as produced 
by a difference of productiveness of the soil. 
There are many limitations and many exceptions, 
which need not be explained. 



92 POLITICAL ECONOMY. 

The third element of rent is that which is caused 
by a difference in location. Every one knows that 
the rent of real estate in New York city is more 
than the rent of similar property in a country vil- 
lage. This may be illustrated in the same way as 
the second element. 

While every tract of land needed is equally well 
situated, there can be no rent on account of dif- 
ference of location. But when all that which is 
most favorably located is preempted, then new 
settlers must be content with less desirable places 
or pay rent to their more fortunate neighbors. 
Thus it will be perceived that location is an impor- 
tant element in the rent of real estate. This will 
explain the reason for the rapid advance in the 
price of real estate when a place in a new territory 
becomes a railroad centre. It will also account 
for the wonderful rise in value of land in our 
newly-settled western States. The frontier line 
has moved so rapidly, and civilization, with all its 
conveniences has kept so near to it, that this ele- 
ment of location has produced an important differ- 
ence in the value of land in a short time. Land 
which to-day may not be worth a dollar because 
there is no market for its products, in a single year 
may become desirable and valuable on account of 
a railway constructed near it. 

These are the three principal elements of the 
rent of real estate. The value of real estate de- 
pends upon the amount of income to be derived 



INTEREST. 93 

from the rent. In other words, rent is the mea- 
sure of the value of real estate. 

Reverse the cause of the inc7'ease^ and there will 
be a decrease of rent and value. 



CHAPTER XXV. 

INTEREST. 

Interest is the compensation paid by the bor- 
rower to the lender for the use of money. 

During the dark ages the practice of receiving 
interest was considered immoral. 

Those who loaned money for a valuable consid- 
eration were persecuted and accounted enemies of 
mankind. 

The early statutes of Great Britain declared 
that interest was illegal. This shows the igno- 
rance of the men of those times in regard to the first 
principles of political economy. Such laws strike 
at the very foundation of public prosperity. The 
principal incentive to industry and economy is the 
hope of obtaining a competency, so that the person 
may retire from active business and enjoy the fruits 
of previous labor. Once establish the principle 
that no man shall receive interest for the use of 
money, and general stagnation of business will 
speedily follow. 

A person should receive compensation for the 



94 POLITICAL ECONOMY. 

use of money for the same reason that he should 
■for the use of any other commodity. Money is 
either value or the representative of value. Hence 
it may be exchanged at pleasure for any other kind 
of property. There is no income from money while 
it remains money; but he who borrows it expects 
to exchange it for productive property. 

If a man occupies a farm belonging to another, 
he expects to pay for the use of it. But if he ob- 
tains money from a third party and purchases the 
same farm, he should pay for the use of the money 
because he will not pay rent for the farm. In this 
case the money which he borrows represents the 
value of the farm which he purchases. He avoids 
the payment of rent by the payment of interest. 
So it is in every case. The borrower exchanges 
his loan for property which he supposes will be 
profitable. Hence it is reasonable and right that 
he should pay for the use of the money. 

Frequently a loan is a benefit to both parties. 
An aged person, a widow, an orphan may have 
property, but may not possess the ability to em- 
ploy it profitably. 

In the vicinity there may be a person who has 
health, strength, skill, ability, but no capital. He 
hires money from some one who does not care to 
use it, and pays a just compensation. He employs 
this borrowed capital in some profitable business, 
pays the interest, and has a margin left sufficient 
to reward him for his labor and trouble. In such 



INTEREST. 95 

a case the loan is a benefit to the borrower and 
lender. 

The foundation of many a fortune has been es- 
tablished upon borrowed capital. Thousands of 
men, women, and children derive their means of 
support from the income received from the loan 
of money. 

But it frequently happens that lenders and bor- 
rowers may not live in the same vicinity. In 
older communities, where capital has been long 
accumulating, lenders of money are usually more 
numerous than borrowers. But in newly-settled 
places the number of borrowers generally ex- 
ceeds that of the lenders. Now it is very desir- 
able that there should be some responsible agency 
for effecting the loan of these surplus funds. This 
is done by means of the banks. They take the 
capital which would otherwise- remain idle, and 
lend it to those who can employ it profitably. Thus 
it will be perceived that the banks are just as neces- 
sary in bringing together borrowers and lenders 
as merchants are in effecting exchanges between 
manufacturers and consumers. The manufacturer 
does not care to leave his work and peddle his mer- 
chandise. He disposes of his goods to men whose 
business is to buy and sell. These merchants are 
acquainted with the manufacturers and consumers. 
They know the state of the market, and the pros- 
pect for the future. They make the distribution 
of merchandise a specialty, and consequently they 



96 POLITICAL ECONOMY. 

can do the work cheaper and better than the 
manufacturers. 

Now, the banks occupy the same position in 
regard to the borrower and lender as does the 
merchant in respect to the manufacturer and con- 
sumer. Both are indispensable in an advanced 
stage of society. 



CHAPTER XXVI. 

TAXATION. 

The primary object of government is the pro- 
tection of life and property. For this purpose laws 
must be enacted and enforced ; legislative, execu- 
tive, and judicial departments must be maintained; 
foreign invasion moast be repelled ; internal anarchy 
must be prevented; an army and navy must be 
organized, armed, fed, clothed, paid. These are 
direct and essential objects to be accomplished by 
government. 

But besides these there are numerous others 
which have an indirect influence almost as impor- 
tant, such as the carrying of the mails, the im- 
provement of rivers and harbors, the pensioning 
of disabled soldiers and sailors, the support of poor 
and unfortunate persons, the education and en- 
lightenment of the common people. These and 
many other things must be done by the govern- 



TAXATION. 97 

ment, in order that it may effect the objects for 
which governments are estabhshed. 

But these things cannot be done without ex- 
pense. Hence there must be some means of 
securing a revenue, some method of replenishing 
the treasury. No form of government can be 
stable without a permanent income. This is gen- 
erally obtained by some system of taxation. 

Governments exist primarily for the protection of 
life and property, and the expenses ought to be 
borne by the persons and property protected. 

In regard to the truth of this proposition, there 
can be no question. But as to means and meth- 
ods, difficulties are encountered at the very thres- 
hold of the subject. 

The first question which presents itself is this : 
What proportion of the expense shall be paid for 
the protection of life, and what for the security of 
property .-* Shall the ratio be according to the rel- 
ative value ? But who can estimate the commer- 
cial value of human life ? Objects must have 
properties, qualities, or attributes in common, if 
there is to be any proper comparison. And what 
ritio can there possibly be between the value of 
life and property ? 

The question also arises, whether all persons 
shall be taxed alike, or whether there shall be dis- 
crimination ; whether women and children shall be 
exempt, or whether there shall be no exception in 
their case ? 



98 POLITICAL ECONOMY. 

Theory, as usual, fails to meet such difficulties. 
Logic does not answer such questions. The expe- 
rience of practical men alone can furnish a solution 
of such problems. 

The conclusion in this country is, that rather a 
small portion of the expense for maintaining the 
government should be equally assessed on the male 
members of the community, who have reached a 
certain age, and that the remainder should be 
paid by the property protected. 

Theory would seem to indicate that the poll 
tax should bear a larger proportion of the whole 
amount to be levied, but experience is a better 
schoolmaster than theory, especially in regard to 
questions of political economy. 

The tax for the protection of the person is called 
poll tax. 

As to the collection of the government revenue 
from property, many theories have been advocated 
and tried. But they may all be classed under two 
general heads. The first and most natural method 
seems to be that of 

Direct Taxation. Direct taxation is levied di- 
rectly on the person who has to pay it, — as a tax 
on incomes, on houses, on furniture ; and if not 
paid, the property can be sold to pay the tax. This 
method would seem to be very simple and easy. 
The assessors are to ascertain the amount of tax 
to be collected, then make out an inventory of 
the property to be assessed, and then let every 



TAXATION. 



99 



dollar in the inventory pay its proportion of the 
tax to be levied. Theoretically there can be 
nothing easier. 

But even here are difficulties. The question 
meets us at the very beginning, What shall be 
placed in the inventory for taxation ? Shall the 
levy be on wealth or on capital ? If the answer is 
wealth, then shall there be any exemptions, or 
shall every article of commercial value be taxed ? 
Shall pictures, paintings, statues, books, furniture, 
clothing, jewelry, be placed in the inventory for 
taxation, or shall the people be encouraged to pro- 
cure those things which tend to raise them to a 
higher state of civilization, by exempting articles 
which have a refining and elevating influence ? 

On the other hand, the question may be asked 
with equal propriety. Shall the last cow of a poor 
widow, the house not yet paid for, the farm which 
is mortgaged for as much as it is worth, be taxed, 
or shall they be exempt ? Such are some of the 
difficulties if we make wealth the basis of taxation. 
But some contend that capital only should be 
taxed. Then the question immediately arises. 
Shall the levy be on productive or unproductive 
capital? Theory might answer, Let the produc- 
tive capital pay the tax ; let the unproductive go 
free ; let there be a tax on income. 

But experience has demonstrated that this 
method of collecting revenue is the most objec- 
tionable which has ever been tried in this country. 



lOO POLITICAL ECONOMY. 

Thus it will be perceived that there are difficul- 
ties to be met in levying even a direct tax. 

The result is, that various methods, not differing 
essentially, have been adopted in different locali- 
ties, to meet the varied circumstances. The rule 
seems to be, that all property protected should be 
placed in the inventory for taxation, unless some 
good reason can be shown for exemption. 

In other words, taxation is the rule ; exemption 
the exception. 

Municipal governments are generally supported 
by direct taxation ;. national, by indirect. 

Indirect taxation is a duty levied on articles be- 
fore they reach the consumer, and may be classed 
under two general divisions — excise tax and cus- 
toms duties. 

Excise is a duty levied on articles produced and 
consumed in the country, and on licenses to deal 
in certain commodities. It is collected from the 
manufacturer or producer. 

Customs duties is the tax levied on commodities 
imported from abroad, and is collected from the 
importer. 

The income for the expenses of the national 
government are derived from customs duties and 
internal revenue. 

Internal revenue includes both excise and direct 
taxes. 

It is collected from citizens, on personal incomes 
and property, on legal papers, on manufactured ar- 



TAXATION. 10 1 

tides, on agricultural products, and on numerous 
luxuries and necessaries. It is sometimes obtained 
by the sale of stamps to be attached to legal docu- 
ments or packages | sometimes by the sale of li- 
censes for persons to engage in certain occupations, 
and by various other devices. 

But these methods of obtaining a revenue have 
always been unpopular in this country, and have 
seldom been resorted to in time of peace. 

During the civil war, when the object was to ob- 
tain as large a revenue as possible, in order to meet 
the enormous expenses of the army and navy, 
taxes were levied wherever they could be collected. 
Luxuries and necessaries alike were taxed, regard- 
less of the theory that the latter should be exempt. 
But since the close of the war, the internal taxes 
have been gradually removed, until there are now 
only a few articles subject to the internal revenue 
tax. The greater portion is collected from spirit, 
malt liquors, and tobacco in its various forms. 

The question in regard to securing a revenue 
from taxation on imports has already been dis- 
cussed in a preceding chapter. 



102 POLITICAL ECONOMY. 



CHAPTER XXVII. 

PROFIT. 

Profit is pecuniary gain derived from any oc- 
cupation or business. 

Profit should be distinguished from rent. If a 
man owns a farm and does not care to cultivate it, 
he may let another person occupy it, and charge 
a certain amount for its use. This compensation 
is called rent. But if the owner himself occupies 
the farm, whatever gain he may derive from its 
cultivation is called profit. 

Thus money received from another for the use 
of real estate is called rent. Money gained by 
occupying real estate is called profit. 

Profit should also be distinguished from interest. 
A person who has money which he does not care to 
use in any business enterprise usually loans it to 
some one who can employ it to advantage, and he 
charges a certain percentage for the accommoda- 
tion. 

This payment from the borrower to the lender is 
called interest. But if a man employs his money 
in trade or speculation, the gain derived from using 
it is called profit. 

Thus, compensation for the use of money is 
styled interest ; gain derived from using money, 
profit. 



PROFIT. 



103 



Profit should likewise be distinguished from 
wages. 

A person who works for another, and receives a 
definite payment for his service, is called a laborer, 
and the compensation which he receives is called 
wages. A person who engages in business for 
himself, and depends upon his gains for an income, 
is called a proprietor ; and his net gain is called 
profit. 

Thus, money received for laboring for another 
is called wages ; money received for laboring for 
one's self is called profit. 

These distinctions are plainly marked, and 
should be clearly understood. 

A distinction should also be made between gross 
profit and net profit. Gross profit is total gain 
before expenses and losses have been deducted. 
Net profit is balance of gain after expenses and 
losses have been subtracted. Frequently there is 
considerable difference between these two amounts. 
Many a man has engaged in business and made 
large gains ; but after paying charges for tax, rent, 
interest, insurance, labor, etc., and making sufficient 
allowance forbad debts, he has found his net profits 
less than nothing. It should be remembered that 
the expense account makes an important difference 
between gross and net profits. 

There is also a distinction between profit and 
dividend, which it may be well to notice. As 
society advances, many important improvements 



104 POLITICAL ECONOMY. 

are needed, which no individual is willing and 
able to undertake alone and unaided. Hence, 
men unite their capital, and form associations for 
the accomplishment of such enterprises. These 
are commonly called companies or corporations. 
The design is to benefit the public, and to secure 
a reasonable amount of profit on the investment. 
The stockholders choose a board of officers, who 
manage the business and periodically divide the 
whole or part of the net profits among the share- 
holders. 

Thus the gains of a corporation are properly 
called profits, but that portion of the net gain peri- 
odically divided among the owners of the stock is 
called dividend, to distinguish it from the undivided 
surplus. In other words, gain undivided, on the 
books of a company, is called profit ; gain divided, 
dividend. 

Amoiuit of Profits. — There are numerous cir- 
cumstances which exert an important influence 
in determining the amount of profit to be derived 
from any business or occupation. If a man en- 
gages in farming, he does not expect large profits, 
nor does he. fear heavy losses. He chooses a 
healthy occupation for himself and family, a safe 
investment for his capital, and is content with a 
slow but sure increase of wealth. On the other 
hand, if he engages in the manufacture of explo- 
sives, or embarks in some speculative scheme, he 
anticipates a much higher rate of profit. He knows 



PROFIT. 105 

that the venture is extra hazardous, but he expects 
that success will be proportionally advantageous. 
Experience proves his theory correct. Risk and 
danger discourage competition in hazardous enter- 
prises, and leave for those who engage in them a 
wide margin for gain. Hence we have the general 
rule that profits should increase in proportion to 
the risk. 

The rate of profit depends also upon the amount 
of sales. A retail dealer, who sells a limited 
amount of merchandise in small parcels, cannot 
afford to accept the same percentage of gain as the 
wholesale merchant, who disposes of large quan- 
tities in the original packages. Hence — other 
things being equal — ■ the rate of gain decreases as 
the amount of sales increases. 

The ratio of profit also depends upon the quick- 
ness of sales. The trader who buys a barrel of 
sugar in the morning and sells it, at a profit, before 
night — repeating the transaction every day — 
makes more than three hundred profits in a single 
year. Each profit may be small, but the gain is 
compounded daily, and his capital increases rapidly. 
A net gain of only one per cent on each sale gives 
him more than three hundred per cent annually. 

But there are articles seldom called for by pur- 
chasers. They sometimes remain months, or even 
years, on the shelves of dealers before they are 
sold. On such classes of goods the profits com- 
pound at long intervals. 



I06 POLITICAL ECONOMY. 

The rate of profit depends, likewise, upon the 
sharpness of competition. In a newly settled terri- 
tory, few men care to encounter the hardships, the 
risks, the dangers of frontier life ; consequently 
there is little competition and a good opportunity 
for gain. 

But large profits always attract adventurers, 
hence competition increases and prices diminish. 
This process generally continues till the expenses 
of some of the parties become greater than the pro- 
fits. Then failures follow, and the number of com- 
petitors is reduced. 

Various other causes are continually operating 
to determine the net profits in business enter- 
prises, but these are sufBcient for our purpose. 



CHAPTER XXVIII. 

DISTRIBUTION OF PROFITS. . 

If a person owns a farm and performs the labor 
necessary to cultivate it, the profits belong to the 
owner. 

But if two men own a farm jointly, a division of 
the gain becomes necessary. This, however, is 
easy, provided that each performs the same amount 
of labor and owns an equal share of the property. 
The division in this case is perfectly simple ; the 
parties share alike the gains and losses. 



DISTRIBUTION OF PROFITS. lO/ 

But if one person owns land and another culti- 
vates it, the question of division becomes more 
difficult. The basis of division, of course, should 
be the amount of each one's investment. But one 
invests real estate, the other personal effort. The 
one is dead matter, the other brain and muscle. 
The elements are unlike, and there can be no 
direct comparison between them. The problem 
involves a factor of uncertainty which is liable to 
produce trouble. Thus far, the only practicable 
solution is to compute, as nearly as possible, the 
money- value of the rent of the real estate and the 
value of the labor, and then divide the profits, 
using these as a basis for division. This method 
has usually proved satisfactory when the net gain 
has been enough to pay a fair rate of interest on 
the investment, and to afford wages sufficient to 
enable the laborer to maintain his family comfor- 
tably. But when the net profits, from any cause, 
become greatly reduced, trouble frequently arises 
between the owner and the worker, even when the 
problem is so simple. 

But as the case becomes more complicated, the 
difficulties rapidly increase. Let us take, for ex- 
ample, a large manufacturing establishment. In 
the first place, the government collects a certain 
amount of tax, which must be paid whether there 
is any profit or not. The property is holden for 
the payment. This element is to be considered in 
every scheme for the division of profits. 



I08 POLITICAL ECONOMY. 

Now, after the taxes and other expenses have 
been paid, the owners of the land claim enough of 
the profits to equal the current rate of interest 
on the investment. Those who construct the 
building expect a larger percentage, because repairs 
will be frequently needed, and the building itself 
will finally decay. Other persons furnish the ma- 
chinery, and demand a still higher rate because it is 
of such a nature as to deteriorate rapidly. Others 
supply the quick capital, and expect more than 
current interest on their money because the risk 
is greater than in an ordinary investment. Those 
who perform the muscular labor must receive 
enough to support their families comifortably, to 
educate their children properly, and to accumu- 
late something for their maintenance in time of 
adversity. Those who supervise the work must 
have more pay than the common laborer, on ac- 
count of their superior skill and ability. And the 
general manager, who furnishes brain and energy 
sufficient to unite all these elements, and cause 
them to work harmoniously as a gain-producing 
agency, must have a salary proportional to his 
ability. 

Such are some of the difficulties of the problem 
for the distribution of the profits of one single 
manufacturing establishment. To make an equi- 
table division is not easy, even when the gain is 
uniform and sufficient. But uniformity is not a 
characteristic of the business world. Unusual 



DISTRIBUTION OF PROFITS. IO9 

commercial activity is always followed by a certain 
degree of stagnation. Large profits are not un- 
frequently followed by heavy losses. 

Hence any scheme for the equitable distribution 
of gains must contain some provision for the satis- 
factory adjustment of losses. Some method should 
be devised by which the failure of capitalists may 
be avoided, and the suffering of laborers and their 
families may be prevented, during times of business 
depression. 

This problem has proved a difficult one, even 
when applied to a single case. What, then, may 
be expected when an attempt is made to estabUsh 
principles, formulate rules, and enact laws for the 
adjustment of losses and gains, which shall be 
equitable and satisfactory to all parties, in all cases 
and under all circumstances. This is the problem, 
and it is not an easy one. 

It might be supposed that the experience of 
European nations, during so many ages, would 
have developed some satisfactory method of distri- 
bution. But their experiments, for the most part, 
have proved failures, and their successes will 
scarcely serve as precedents for us on account of 
the different circumstances. The conditions and 
relations of the various classes of society in this 
country are, in many respects, different from those 
in the Old World ; the rate of interest is usually 
lower ; the laborers are largely of a different class ; 
few of the circumstances affecting the adjustment 



no POLITICAL ECONOMY. 

of gains and losses are similar. Hence the prin- 
ciples upon which the distribution of profits has 
been made there may not prove to be applicable 
here. 

One thing, however, is certain, — that time, ex- 
perience, and wisdom ought to be able to devise a 
scheme for the satisfactory adjustment of the diffi- 
culties between laborers and employers. 



CHAPTER XXIX. 

JOINT LABOR ASSOCIATIONS. 

Labor and capital have always been considered 
the most important elements of Political Economy. 
Capital cannot be made productive without labor, 
and labor cannot find employment without capital. 
They are necessarily associated in every business 
enterprise ; they are partners and joint agents in 
acquiring gains, therefore they should share the 
profits. But it has been shown that a perfectly 
just and equitable distribution of earnings or profits 
is a difficult problem. Hence controversies have 
often arisen between laborers and the managers of 
various branches of business. 

To remedy these difficulties, numerous forms of 
joint labor associations have been advocated by 
certain sanguine reformers. The theory is that 
laborers should unite and form associations, choose 



JOINT LABOR ASSOCIATIONS. Ill 

officers, select managers, and engage in various 
kinds of business enterprises — such as building, 
manufacturing, retailing, wholesaling, importing, 
exporting, etc., — and, after paying the expenses, 
divide the profits among the members. 

But it may be asked, what is the difference 
between a labor association of this kind, and a 
common company or corporation ? It is this : 
In a corporation, salaries, wages, and expenses 
are paid, and then the net gain is divided among 
the stockholders. In a joint labor association, ex- 
penses only are paid, and then the profits are dis- 
tributed among the members. In the former case, 
the laborer is only a hired worker ; in the latter, he 
becomes a partner. He has a voice in the man- 
agement and a share in the profits ; and it is claimed 
that such a system ought to produce harmony 
between labor and capital. Certainly the theory 
seems practical, but success has rarely attended 
its application. Failures have resulted from various 
causes, but the chief reason seems to have been 
the want of suitable persons for general mana- 
gers. 

Men whom Nature designed for leaders, whom 
education and experience have fitted for superin- 
tendents of important enterprises, are not content 
to become heads of labor associations. Such per- 
sons can command high salaries, and will not sub- 
mit to a division of the profits with those of inferior 
ability. Men who have brain, energy, and execu- 



112 POLITICAL ECONOMY. 

tive force are few, and are seldom found among 
common laborers. They can choose their places 
and name their salaries. 

But men of inferior capacity frequently overesti- 
mate their powers, and are willing to assume re- 
sponsibilities for which they are not fitted. Hence 
weak men often became leaders in such societies. 
This has been one of the most common causes of 
their want of success. ' 

Another reason is that the income of each 
member depends upon a division of profits, and 
not upon his own efforts. It may be said that this 
should make no difference ; for a man ought to 
work just as diligently in one case as in the other. 
But Political Economy does not treat of an ideal 
world. It takes men and things as it finds them, 
and tries to make them better. 

It is a fact admitted by all, that men will not 
plan so carefully, economize so rigidly, and work 
so faithfully, to increase the income of an associa- 
tion, as they will if they are to receive the whole 
profit. Hence gains are liable to be less, and losses 
greater, in such associations, than they would be if 
affairs were managed by one proprietor. Commu- 
nity of interest always weakens individual respon- 
sibility, and is ,often the source of failure. 

The suspension of the income of the members of 
these joint unions, in times of business stagnation, 
has been another cause of their failure. Usually 
shareholders in regular companies buy stocks with 



INCOME FROM CAPITAL. II 3 

surplus earnings. They do not depend on dividends 
for their daily bread. Hence they do not suffer for 
want of food and clothing when a financial crisis 
comes. 

But men who unite and form joint labor unions 
usually invest in them what little capital they 
have, and spend the income as soon as received. 
This is all very well as long as gains are sufficient 
and constant, but when a panic comes, when losses 
are to be adjusted, when dividends cease, then 
most of the members are left without income. But 
their families must have bread. 

The result is that the majority of the share- 
holders sell their interest at a heavy loss to men 
who have capital, and have been waiting for just 
such an opportunity, which they knew would come 
sooner or later. Thus the joint union dissolves ; 
the members lose the greater part of the money 
invested, and are content to return to the old sys- 
tem of laboring for wages, which seems to be the 
natural method. 



CHAPTER XXX. 

INCOME FROM CAPITAL. 

Capital represents surplus wealth secured by 
previous labor. It has already been shown that 
reasonable compensation should be paid for the 



114 POLITICAL ECONOMY. 

use of capital. Hence the managing agent of any 
business enterprise should be able to pay to the 
owners of the stock such a share of the -^net gain 
as will be equal to the current rate of interest. If 
the return is more than ordinary interest, competi- 
tion will soon reduce it to the common level. If 
it is less, capital will seek some other place for 
investment. The man who risks his property in a 
legitimate business has just as good reason to 
claim compensation as the laborer has to expect 
wages. 

The same principle holds true in respect to 
companies and corporations. Stockholders ought 
to receive an equitable share of the net earnings. 
But dividends should be computed on real value, 
not on fictitious capital. Every dollar of the stock 
of a corporation should represent a dollar actually 
paid into the treasury. This was the original idea 
of a corporation, and it ought not to have been 
abandoned, even though our system of internal 
improvements might have advanced less rapidly. 

But, unfortunately, new methods have been 
adopted which time and experience will probably 
prove to be erroneous, and, it may be, even dan- 
gerous. 

A new and growing community invariably ab- 
sorbs an unusual amount of capital. This has 
proved specially true in the settlement of our West- 
ern States and Territories. Extensive systems of 
railways seemed to be needed for carrying the 



INCOME FROM CAPITAL. n^ 

surplus products to markets on the seaboard. But 
the prospect of legitimate dividends, derived from 
net earnings of railways in new settlements, was 
not sufficient to induce capitalists to invest their 
funds in such enterprises. Hence a scheme was 
devised by which credit would take the place of 
capital, and a high rate, of interest could be sub- 
stituted for dividends. For a time this new system 
was very popular. 

Under this arrangement, a few shrewd managers 
form an association, obtain a charter, secure a 
donation of land if possible, execute a mortgage 
on the franchise and prospective property, and 
issue bonds bearing a high rate of interest for 
enough to build and equip the road. These are 
placed in the hands of trustees, to be delivered to 
the managers as the road progresses. The bonds 
are sold, and the proceeds used for construction 
and equipment purposes. Thus the road is built 
by means of funds furnished by the bondholders. 
The capital stock is retained in the hands of the 
managers, and represents no real value actually 
paid into the treasury. In this case the bond- 
holders are the real owners, while the management 
is entirely under the control of the stockholders. 
The scheme was bad in theory, and has proved 
worse in practice. The risk is all with the bond- 
holders, who advance their money on poor security ; 
the gain, should there chance to be any, is all for 
the managers. But capital stock which represents 



Il6 POLITICAL ECONOMY. 

no real value should bring no return. Parties who 
incur no risk should have no share of the gain. 
The bondholders should receive the amount of 
interest promised, and the managers proper com- 
pensation for their services. But if the stockhold- 
ers obtain a share of the net earnings, in the form 
of dividends, injustice will be done to other par- 
ties. In such case the schedule of charges for 
transportation must be too high, or the payments 
for labor too low, or both interests may suffer 
jointly. Such practices are too common, and have 
served to produce distrust in the popular mind. 
Many corporations are now paying dividends on 
capital stock which does not represent real value. 
Hence laborers complain that they do not receive 
a fair proportion of the n^t earnings, while patrons 
accuse corporations of being monopolies and charg- 
ing extortionate prices. Thus there is increas- 
ing difficulty between companies and individuals. 
There ought to be some effectual remedy. 

The above is only one method of placing on the 
market stocks which have no real value. There 
are numerous other devices which need not be ex- 
plained. The principle is the same for all cases, 
— that only capital stock representing value should 
receive dividends. 



INCOME FROM CAPITAL. II7 



CHAPTER XXXI. 

THE BUSINESS MANAGER. 

Political economists all agree that there are two 
primary elements in every business enterprise, — 
capital and labor. This fact no one pretends to dis- 
pute. But it is now quite generally admitted that 
there is also a third distinct element, — the man- 
agement. And it is thought by some that much of 
the confusion in regard to the labor question has 
resulted from not recognizing this third element. 

In every business enterprise there must be capi- 
tal, and there must be labor ; but there must also 
be a head, an executive with sufficient capacity to 
unite the other two elements and cause them to 
work harmoniously and profitably. This managing 
agent should so utilize capital by the employment 
of suitable labor, that he may pay reasonable inter- 
est on the investment, and satisfactory wages to 
the workmen, — reserving sufficient compensation 
for management, and setting apart ample surplus 
to provide for probable contingencies, so that 
wages and dividends may not cease when a finan- 
cial crisis comes. Such are some of the results 
to be accomplished by a business manager, but 
his duties cannot be readily defined. 

The failure to recognize this third element has 
probably resulted from the fact that the manager 



Il8 POLITICAL ECONOMY. 

has frequently furnished the capital, and sometimes 
performed the labor, thus uniting two or even three 
interests in one person. The subject can probably 
be best understood from famihar illustrations. 

If a man hires a farm, employs men to cultivate 
it, and he himself manages the business, the 
three parties are distinct. In this case the owner 
expects his rent, and the laborers demand their 
wages, whether the manager gains or loses. If 
there is net loss, he suffers it ; if net gain, he ought 
to receive it. The risk gives the manager the 
title to the profits. 

If a man owns a farm and hires men to cultivate 
it, he is the owner and manager at the same time. 
But how shall he divide the profits .-* In the same 
manner as before, only he should receive the 
shares of the two interests. 

But if a person hires a farm, manages it himself, 
and performs all the manual labor, then he repre- 
sents both the manager and the laborer. In this 
case he should pay rent to the owner of the real 
estate, and reserve to himself the share of the 
other two parties. 

Finally, if a man owns a farm, manages it him- 
self, and performs all the labor, then he represents 
the three parties — capitalist, manager, and laborer. 
He should receive interest on his investment, 
wages for his work, and the remainder of the profits 
for his management. 

In these cases the manager incurs the risk, 



WAGES. 119 

therefore he should receive the gain, after all 
charges are paid. 

These illustrations apply to corporations. Usu- 
ally the managers own the capital stock. The 
stockholders, therefore, representing two parties, 
should receive fair interest on their investment, 
and the net gain, after paying satisfactory wages to 
laborers. 



CHAPTER XXXII. 

WAGES. 

Wages may be defined, according to Dr. Web- 
ster, "A compensation given to a hired person for 
his or her services." Sometimes other expressions 
are employed to denote payments made for labor, 
but these are all comprehended under the general 
term — wages. Thus, the hackman receives fare ; 
the boatman, freight ; the inventor, royalty ; the 
author, copyright ; the president, salary. And yet 
all these are wages received for personal services. 

Like every other exchangeable commodity, the 
price of labor is constantly changing. There are 
numerous circumstances which tend to establish 
the price of labor at any given time and place. 

The cost of living has an important influence. 
The laborer must have food, clothing, and shelter 
for himself and family. These are the prime ne- 
cessaries of life, and the laborer must earn enough 



I20 POLITICAL ECONOMY. 

to procure them. This is the natural minimum 
of compensation. If the scale of ordinary wages 
becomes permanently less than this standard, the 
labor-system will finally become demoralized ; able- 
bodied men will become paupers, and the working- 
classes will rebel or emigrate to more favorable 
localities. Ireland has long been an example of 
the effect of paying starvation wages. 

But the cost of living varies greatly in different 
places. In some of the eastern countries the ex- 
pense of maintaining a family is exceedingly small, 
and the price of labor is correspondingly low. In 
the United States, expenses are many times 
greater, and wages are very much higher. 

The cost of living varies also at different times. 
Thus in California, soon after gold was discovered, 
provisions and groceries were sold for almost fabu- 
lous prices, and laborers claimed equally exorbitant 
wages. When the excitement subsided, prices and 
wages both declined to reasonable figures. 

The cost of supporting a family varies also ac- 
cording to the station which the laborer occupies. 
The necessary expenses of the President of the 
United States are vastly more than those of an 
ordinary private citizen. Hence — other things 
being equal — there ought to be a marked differ- 
ence between their receipts for services. 

Thus it might be shown that the cost of living 
and the price of labor have always exerted an im- 
portant influence upon each other. There has 



WAGES. 121 

never been a marked variation in the former, 
without a corresponding change in the latter. 

Now, some have argued that prices of necessa- 
ries control wages. Others have contended that 
wages regulate prices. But it is not proposed to 
discuss this question. It may be well to remark, 
however, that a rise of wages invariably follows 
an increase of prices — never precedes. This 
would seem to indicate which should be consid- 
ered the cause, and which the effect. 

Again, it may be remarked that the price paid 
for work depends greatly upon the kind of ser- 
vice. The man who carries brick and mortar 
is sometimes envious of the master-builder. But 
it should be considered that the former is paid 
simply for elementary labor ; the latter, for skilled 
labor. The services are different in kind, and the 
wages should be as the quality, not quantity. The 
common laborer could not do the work of the 
master-builder ; hence he should not expect like 
compensation. 

Higher wages are also paid for mental than for 
physical labor. The physician, the lawyer, the 
teacher, the clergyman, receive more for profes- 
sional services than does the uneducated man for 
manual labor. The reason is obvious. The qual- 
ity of the service is not the same. The man who 
has spent years of the best part of his life, and a 
large sum of money, preparing for his vocation, 
should not work so cheaply as the common laborer 



122 POLITICAL ECONOMY. 

who has made no preparation. Professional train- 
ing has sometimes been called the capital stock of 
the educated person. 

A high rate of wages is also paid for executive 
ability. The private soldier sometimes complains 
because his pay is so small compared with that of 
the commanding general. But the latter is paid 
for his military skill, his intellectual capacity, his 
executive ability. Few men are capable of com- 
manding a great army. If a person does what other 
men cannot do, he should be paid accordingly. 
The best service should receive the highest wages. 

The price of labor likewise depends upon the 
value of the currency. It makes a difference 
whether a man receives his wages in gold, or in 
depreciated paper. During our civil war, gold and 
silver ceased to circulate as money, and treasury 
notes became legal tenders for the payment of 
ordinary debts. The result was that paper money 
rapidly depreciated, until thirty -five cents in gold 
would buy a paper dollar. But as the currency 
depreciated, wages increased. When the war 
closed, greenbacks became more valuable, and 
wages became less. 

But it is questionable whether the intrinsic value 
received for labor at any time during the war was 
really as great as it is to-day, although the nominal 
amount was very much more. So it has always 
been. Wages increase as the intrinsic value of 
the currency decreases, and vice versa. 



WAGES. 123 

Demand and supply also have an influence on 
wages. When there are more laborers than there 
is work, wages decrease. When there is more 
work than there are workers, wages increase. 
These changes result from competition. 

This principle explains why women have received 
less pay for the same kind of service than men. 
There have been comparatively few kinds of work 
which women have been considered able to do. 
Consequently there have been more women seeking 
work than could find employment. The supply 
has been greater than the demand. Competition 
has produced the natural result — the wages of 
women have been too low. The remedy is to cre- 
ate sufficient demands for woman's work. Compe- 
tition will then be less, and the difficulty will be 
removed. There has been marked improvement in 
this respect during the last few years. 

But the most important element in determining 
the price of labor is the amount of net gain. High 
wages may be paid when business is profitable. 
Wages must be low when gains are small. If 
there is no net profit, wages must cease, unless 
they are paid from the capital invested. For a 
short time, during temporary commercial stagna- 
tion, laborers may be paid from surplus capital, 
derived from previous earnings, even when there 
are no net profits. But the general principle is, 
that wages must be paid from net earnings. Hence 
laborers ought to be interested in the prosperity of 



124 POLITICAL ECONOMY. 

business enterprises. Home consumption should 
be encouraged, foreign markets should be sought, 
ruinous competition should be avoided, confidence 
should be restored, and the laborer should receive 
an equitable share of the profits. 



CHAPTER XXXHI. 

LABOR DIFFICULTIES. 

As has been previously stated, many impor- 
tant improvements are needed, which cannot be 
secured by individual enterprise. The risk and 
expense are too great for one person to incur. 
Hence, numerous companies have been formed for 
various purposes. But in order to accomplish the 
desired objects, these associations must have special 
powers not granted to individuals. 

For example, when a railway is to be constructed, 
the company must have the right to build it across 
land owned by private parties, by paying proper 
damages. Other privileges must also be secured, 
not permitted by the common law. Hence, a com- 
pany of persons form an association and secure 
from the law-making authority a grant to exercise 
certain special powers for specific purposes, which 
are presumed to be for the public good. Such 
grants are called charters. In some States they 
are obtained under general laws ; in others by 



LABOR DIFFICULTIES. 1 25 

special acts. These companies have been very use- 
ful in developing the resources of the United States. 

But sometimes complaint is made that corpora- 
tions exceed their granted powers, violate their 
charters, and oppress their employees. It is fre- 
quently asserted that the distribution of profits is 
not equitable — that wages are too low compared 
with dividends. Doubtless, in some cases, there 
are reasons for complaint, and there should be 
some means for legal investigation — some effec- 
tual remedy for labor difficulties. 

The State, which has granted to corporations 
certain special privileges, should see that these ex- 
traordinary powers are properly exercised. 

There should be in every State a labor commis- 
sion, composed of men of character, ability, and 
experience, to which all questions in regard to 
freight, travel, express, and labor, arising between 
corporations and individuals, should be referred. 
This commission should have ample powers to ex- 
amine books, to compel testimony, to investigate 
complaints, and to decide all disputes between 
labor and the managers of capital. 

There should, however, be the right of appeal, 
in certain cases, to a court of arbitration having 
final jurisdiction, by which unjust complaints could 
be investigated and silenced ; and valid ones could 
be heard and remedied. 



QJJ E S T I O N S. 



INTRODUCTION. 

What is political economy ? 
Of what does it treat ? ^ 

What is politics ? 
Of what does it treat ? 

What is the diiference between political economy and 
politics ? 

What is intrinsic value ? 

What is commercial value ? 

Difference between intrinsic and commercial value of air ? 

Of water ? 

When will water have a commercial value ? 

W^hat is money ? 

What is worth ? 

What is cost? * 

What is price ? 

What is wealth ? 

Why should not air and sunlight be considered wealth ? 

What is labor ? 

What is capital ? 

What is quick capital ? 

What is permanent capital ? 

What is productive capital ? 

What is unproductive capital ? 

What is a capitalist ? 

126 



QUESTIONS. 127 

CHAPTER I. — Page 5. 

What is said of the spontaneous products of Nature ? 

How can wealth be produced ? 

What will overcome man's love of ease? 

What will induce the savage to labor ? 

How is the wealth of the savage obtained ? 

Why has he so little wealth ? 

CHAPTER II. — Page 6. 

What is the effect of moral and intellectual improvement 
on wealth ? 

Hunger teaches what ? Famine what ? 

What is the food of shepherd tribes ? 

What are the requirements of shepherd life ? 

What sustains their flocks and herds ? 

Why must their homes be temporary ? 

What serves to restrict the amount of wealth of shepherd 
tribes ? 

CHAPTER III. — Pages. 

What is said of a nomadic life ? 

Result when food or water fail ? 

Effect of a severe winter 1 

Result when men become tired of a shepherd life ? 

Why do men cultivate the soil ? 

Why do they build houses and barns ? 

Why do shepherds become agriculturists ? 

What is the tendency of civilization ? 

CHAPTER IV.— Page 9. 

What is the prime element of wealth ? 
How does the savage supply his wants ? 
What is said of special aptitudes ? 
Result of a man's doing a little of everything ? 



128 POLITICAL ECONOMY. 

What kind of work should each one do ? 
What causes a demand for more rapid production ? 
Explain what is meant by division of labor ? Illustrate by 
the shoe business. 

Name some of the advantages of a division of labor. 
What will determine the limit of the division of labor? 

CHAPTER v. — Page 12. 

Wants of the savage ? 

Increase of wants ? 

Substitutes for human muscle ? 

What animals have been used for motive power ? 

What kinds of labor have been performed by them ? 

What is the effect on the production of wealth } 

What are the objections to domestic animals ? 

What was next used as a motive power ? 

For what has the wind been employed ? 

What are the objections to its use ? 

What was next employed ? 

Why is water better than wind as a motive power ? 

Advantages and objections ? 

What is said of steam as a motive power ? 

What has been accomplished by the steam engine ? 

For what has electricity been used ? 

What has been accomphshed by it ? 

What may be expected in the future ? 

CHAPTER VI. — Page 16. 

What is said of tools and implements ? 

For what are they used ? 

When does compHcated machinery become necessary ? 
Examples. 

What is said of the application of wind, water, steam, and 
electricity as a motive power ? 



QUESTIONS. 129 

CHAPTER VII. — Page 19. 

What is capital ? 

Something besides labor necessary to produce wealth ? 
What is the capital of the Indian ? 
Capital of the fisherman ? 
What are payments for labor ? 

Why are not wealth and capital synonymous terms ? Illus- 
trate. 

CHAPTER VIIL — Page 20. 

What is the natural tendency of capital ? 
What effect have mountains, lakes, rivers, and the ocean 
on the increase of capital ? 

What influence has the nature of the soil on capital ? 

Influence of climate ? 

Character of the inhabitants ? 

Nature of the government ? 

Why is capital a political barometer ? 

CHAPTER IX. — Page 24. 

What is trade ? 
What is direct trade ? 
Give an example of barter. 
What is the second stage of trade ? 
What is the reason for the demand for traders ? 
What are exports ? 
What are imports ? 
Who are exporters ? 
Who are importers ? 
What are duties ? 
What is a tariff? 

What is the difference between specific and ad valorem 
duties ? 

When do luxuries become necessaries ? 

What is said in regard to restrictions on trade ? 



130 POLITICAL FXONOMY. 

CHAPTER X. — Page 28. 

What is the theory of free trade ? 

What is the argument from the Bible ? 

What is the answer ? 

Why should the owner of stalls in a market receive pay 
for their use ? 

Why should a nation receive pay for the use of its markets ? 

What is said of the moral right to levy a duty on imports ? 

What then does the question become ? 

What effect has the collection of duties on other forms of 
taxation ? 

What is said of direct taxation ? 

What answer has heen given ? 

What kinds of articles have usually been taxed ? 

What is the argument from benevolence ? 

What should be the answer ? 

What is said of charity ? 

CHAPTER XL — Page 32. 

Why are governments necessary ? 
Why is taxation of some kind essential ? 
What is the theory of taxation for revenue ? 
What are the principal objections ? 
What is said of taxing alcohol and tobacco ? 
Can an evil be remedied by taxation ? 
How can evils be prevented ? 

What will be the effect of levying a high duty on luxu- 
ries ? 

What is said of the application of this theory ? 

CHAPTER XII. — Page 34. 

What is the theory of the protectionist ? 

How does a duty on imports protect home industry ? 



QUESTIONS. 131 

Wliat will be the effect of free competition ? 

What would be the effect if cotton cloth were placed on 
the free Hst ? 

What, when there is a high duty? 

How does a high tariff benefit the manufacturer ? The 
mechanic ? The farmer ? 

What is said of conflicting interests ? 

What are the difficulties in regard to duties on iron ? 
Lumber? Sugar? 

Does " protection protect ? " 

What are the final results of a protective tariff? 

CHAPTER xni. — Page 39. 

What are some of the theories which have been advocated ? 
They are modific^ons of what ? 

What is said of the need of protection in a newly settled 
territory ? 

What in older communities ? 
When should artificial barriers be removed ? 
When may absolute free trade be the true policy ? 
What should decide questions of revenue ? 
When should changes be made ? 

CHAPTER XIV. — Page 42. 

When is there no need of money ? 
When is there need of money? 
What is money ? 

What is the measure of distance, surface, capacity, weight? 
What substances have been used for money? 
What propert}^ must a measure of value possess ? 
What are four essential qualities which money should 
possess ? 

Are there any others ? 



132 POLITICAL ECONOMY. 

Objections to the substances previously mentioned? 
Why have gold and silver been used ? 
. How was the value of money ascertained? 

What are the objections to weighing out money? 

CHAPTER XV. — Page 45. 

When were coins first used? 
When did the Lydians coin gold? 
Who were the Lydians ? 

When did the Romans coin silver? When gold ? 
What metals are now used for money ? 
What are coins ? 

Can the value of metal be changed by stamping ? 
What would be the effect of calling half-dollars, dollars ? 
Why did kings debase the coins ? 

What were the effects of debasing th^coins of the realm? 
What would be the effect of shortening the yard-stick? 
Of Ieno;thening it? 

What nations have tampered with the coinage ? 
What results have followed ? 

CHAPTER XVI. — Page 48. 

Should the unit of value be made of gold or silver? 

Arguments in favor of silver as a standard? 

Objections? 

Why should gold be the standard? 

Arguments in favor of both gold and silver? 

Objections to a double standard? 

What was the effect of the discovery of gold in California 
and AustraHa ? 

Of the discovery of silver in Nevada ? 

What is said of an adjustment of the ratio, when there is a 
double standard? 

What is the weight of the gold eagle ? 



QUESTIONS. 133 

Weight of the silver dollar? 

What change is now necessary ? 

What is seigniorage ? 

Why should there be a charge for coining money? 

Eifect of free coinage? 

What is supposed to be the true theory ? 

CHAPTER XVII. — Page 52. 

What is a bank ? 

What is a bank of deposit? Discount? Exchange? 
Issue? 

Describe the banking system of Greece and Rome. 

When was banking revived ? 

When and why was the Bank of Venice established ? Of 
Barcelona ? Of Genoa ? Of Amsterdam ? 

How were payments made through these banks ? 

Explain how bills of exchange originated. 

What is said of loaning deposits? 

When was the Bank of England organized ? 

Why was it estabhshed ? 

Its original capital ? 

How does the bank regulate the circulation of specie? 

Is such a bank needed in the United States ? 

When will New York become the financial centre ? 

CHAPTER XVIII. — Page 56. 
Describe the Bank of North America. 
Give a history of the first Bank of the United States. 
When did its charter expire? 

What will be the future decision in regard to this bank ? 
When and why was the second Bank of the United States 
organized ? 

When did its charter expire ? 
How was it managed ? 
What was the result? 



134 POLITICAL ECONOMY. 

CHAPTER XIX. — Page 60. 

What is said of the charter of State banks ? 

When was the first one chartered ? 

What were the objections to State banks? Failures? 
Losses? Panics? 

When and where were the State bank notes redeemed ? 

What was the limit of the circulation? 

What were the results ? 

What were the causes of financial difficulties under the old 
system ? 

What was the effect of the civil war on the banking system ? 

Why was there a suspension of specie payment ? 

How was the State bank system changed to a national 
system ? 

How could taxation prevent the State banks from issuing 
circulating notes ? 

Why was there no objection to the change ? 

What would be the effect of the repeal of the law by which 
the circulation of State banks is taxed? 

Which is the better system ? Why ? 

CHAPTER XX. — Page 66. 

What is the most important use of banks? 

What is the average amount of daily deposits ? 

What proportion of the deposits may be safely loaned ? 

Do national banks pay interest on deposits ? 

What are savings banks ? 

Why were they organized ? 

When were they established ? 

By what authority are they organized in the United States ? 

What is said of their deposits, loans, dividends, manage- 
ment, usefulness ? 

Should there be government savings banks connected with 
post-ofiices ? 

Reasons ? Objections ? 



QUESTIONS. 135 

CHAPTER XXL — Page 70. 

What are the principal corporate powers of the national 
banks ? 

How may they be organized ? 

What is free banking ? 

Who may become stockholders ? 

What is the legal amount of capital stock? 

When must it be paid in ? 

How many dollars constitute a share ? 

What are the liabilities of shareholders ? 

What is said of surplus capital ? 

For w^hat can it be used ? 

What are the qualifications for directors ? 

Duties of directors ? Residence ? 

Bonds to be deposited ? 

Why are the bill-holders secure ? 

What will be the effect when the bonds are all paid ? 

For what are the bank notes legal tenders ? 

Exceptions, and why ? 

Where are the notes redeemable ? 

Why are they redeemed ? 

When and by whom destroyed ? 

On what kinds of security are national banks prohibited 
from loaning money ? 

What statements are they required to make ? 

When do the banks serve as national depositories ? 

What is said of the system? 

CHAPTER XXIL — Page 78. 

What are treasury notes ? 

Why were they issued ? 

For what were they legal tenders ? 

What should have been done with them? 

Why are they the source of financial danger ? 



136 POLITICAL ECONOMY. 

What is meant by the " balance of trade ? " 

What will be the effect when the balance of trade is unfa- 
vorable to us? 

If the "greenbacks " should be destroyed, what would take 
their places ? 

How does the government save paying interest by issuing 
treasury notes ? 

What value do " greenbacks " represent ? 

What is the limit of their issue ? 

When are they necessary ? 

CHAPTER XXIII. — Page 83. 

What besides specie are used for money ? 

Can the exchanges be made with these alone ? 

What are book accounts ? 

What are the objections to them ? 

Why are notes better than accounts ? 

Who is the maker of a note ? Payer ? Holder ? 

What is a check ? 

What are certified checks ? 

What is the difference between a common check and a 
certified check ? 

What are certificates of deposit? 

Why are they convenient ? 

What is the difference between a certified check and a 
certificate of deposit? 

What is a cashier's draft? 

What is an ordinary draft? 

What is the difference between the two ? 

How do drafts serve as mediums of exchange? 

What is the office of the banks in such cases ? 

For what purpose is currency used in exchange ? 



QUESTIONS. 137 

CHAPTER XXIV. — Page 89. 

What is rent ? 

What is the first element of rent ? 
What is the second? The third? 
Illustrate each of these by examples. 
What will cause a decrease of rent ? 

CHAPTER XXV. — Page 93. 

What is interest ? 

When, where, and why was interest formerly considered 
illegal ? 

The effect of such laws ? 

What is the principal incentive to labor and to accumulate 
property ? 

Why should the lender of money receive compensation ? 
Illustrate. 

Show how a loan may benefit both the borrower and the 
lender. 

How do the banks serve as loan agents? 

How do banks compare with agents ? 

CHAPTER XXVI. — Page 96. 

What is the primary object of government ? 

Mention some essential objects to be accomplished by 
government. 

What others have an indirect influence in protecting life 
and property ? 

How are the expenses for accomplishing these objects to 
be secured ? 

How should the taxes be assessed ? 

What proportion shall be assessed on the person and what 
on property ? 

Shall all persons be taxed alike ? 



138 POLITICAL ECONOMY. 

Shall there be any exceptions ? 

What is a poll tax ? 

What is a property tax ? 

What is direct taxation ? 

Shall wealth or capital be taxed? 

Shall there be exemptions of property? 

What is said of an income tax ? 

What is the rule for taxation ? 

What is indirect taxation ? 

What is excise ? 

What are customs duties ? 

What is internal revenue ? 

What is said of taxation during the civil war? 

CHAPTER XXVII. — Page 102. 

What is profit? 

How shall profit be distinguished from rent? 

How from interest ? From wages ? 

What is the distinction between gross and net profits? 

Difference between profit and dividend ? 

Amount of profits in farming ? 

In speculative schemes ? 

How does the amount of sales affect the profits ? 

The quickness of sales ? 

The sharpness of competition ? 

CHAPTER XXVIIL — Page 106. 

When will there be no division of profits ? 

When and how will the profit be divided between two ? 
Between three ? 

How should the profits of a manufacturing establishment 
be divided ? 

What is said about losses ? 



QUESTIONS. 139 

What is said about establishing rules for the distribution 
of profits applicable to all cases ? 

What has been the experience of European nations ? 

CHAPTER XXIX. — Page no. 

What is said of labor and capital ? 

Why have labor controversies arisen ? 

What remedies have been advocated ? 

What is the diiference between labor associations and 
corporations ? 

What are the three reasons given for the failure of joint 
labor associations ? 

What has been the final result in most cases ? 

CHAPTER XXX. — Page 113. 

What does capital represent ? 

Why should compensation be received for its use? 

How does this principle apply to corporations ? 

What should nominal capital represent,'* 

Explain the new method. 

What are the objections to the new method? 

CHAPTER XXXI. — Page 117. 

How many primary elements in every business transaction ? 
What are the duties of a business manager? 
Wh}'- have men failed to recognize the third element ? 
What is the ilkistration when the three elements are 
distinct ? 

When two are united ? 

When the three are united ? 

How do these illustrations apply to corporations ? 



140 POLITICAL ECONOMY. 

CHAPTER XXXII. — Page 119. 

Define wages. 

What other terms are used ? 

Why does the cost of living affect wages ? 

What is the natural minimum of wages ? 

What effect have time, place, and other circumstances on 
wages ? 

What kind of labor commands the highest pay? Why.'* 

What is said of the private soldier and the general ? 

What effect has a change in the value of the currency on 
wages ? 

Wages during the civil war ? 

What is the effect of demand and supply on wages ? 

What is said of the wages of women? 

What is the most important element in determining the 
price of labor ? 

From what must wages be paid ? 

What will tend to increase the price of labor ? 

CHAPTER XXXIII. — Page 124. 

Why cannot all enterprises be accomplished by private 
parties ? 

Why are companies formed ? 

Why must corporations have special powers and privileges ? 

What should be done if they violate their charters and 
exceed their granted powers ? 

What is said of a labor commission ? 

What of a court of arbitration ? 



INDEX. 



Page 

Accounts 83 

Air, value of 2, 3 

not wealth 3 

Animals as a motive power . . 13 
Arbitration, court of . . . .125 

Banks of deposit 52 

of discount 52 

of exchange 52 

of issue 52 

history of 53 

of Greece 53 

of Amsterdam 53 

of England 55 

of the United States ... 56 

of North America . ... 57 

first Bank of United States, 57 
second Bank of United 

States 59 

State banks 60 

objections to 61 

charters of 62 

confidence in 62 

supervision of 63 

control of 63, 65 

change of .64 

tax of 64 

Savings banks 66 

object of 67 

under general laws ... 68 

charters 68 

deposits 68 

management of .... 68 

post-office savings banks . 6q 

I 



Page 

National banTcs 70 

corporate powers .... 70 

organization 70 

stockholders 71 

capital stock 71 

surplus • 72 

directors 73 

deposits of bonds .... 74 
circulating notes .... 75 
redemption of notes ... 76 

loans 76 

statements "]*] 

as depositories of public 

money "]•] 

bank notes 83 

Barter 24, 42 

Betterments 90 

Bondholders T15 

Book accounts -83 

Business manager . . ... .117 

Capital, quick 4 

permanent 4 

productive 4 

unproductive 4 

of Indians 19 

of fisherman 19 

of farmer 20 

increase of 20 

political barometer ... 24 

of banks 74 

income from 113 

dividends on 114 

Capitalist 4 



41 



142 



INDEX. 



Carpenter ........ ii 

Cashier's draft 86 

Certificate of deposit .... 86 

Checks 85 

certified 85 

Climate, influence on capital . 22 

Cloth, free 36 

duty on 36 

Coinage, by Lydians and Ro- 
mans 45 

debasing of 46 

theory of 51 

Cost 2 

Court of arbitration . . . .125 

Credit as a medium of exchange, 89 
Currency, influence on the price 

of labor 122 

Customs 26 

Deposit, bank of 52 

certificate of 86 

Deposits, loaning of . . . 54, 66 

interest on 66 

Destruction of bank notes . . 76 

Directors of banks "jt, 

Discount ........ 52 

bank of ....... 52 

Dollar ......... 48 

weight of ....... 50 

coinage of ...... 51 

Drafts 87 

cashier's ....... 86 

Drawee 85 

Drawer 85 

Duty, specific 26 

ad valorem 26 

Eagle, weight of 50 

Electricity as a motive power . 1 5 

Engine 15 



Exchange ........ 85 

bank of ...»,.. 52 

Exporters le 

Exports 15 

Farmer 10 

Free banking 71 

Free trade 28 

Gold, as a standard .... 49 

in California 49 

Government, influence of capi- 
tal 23 

Gravitation 14 

Holder 85 

Horse 13 

Importers 26 

Imports 26 

Inhabitants 22 

Interest 93 

in savings banks .... 67 

compound 67 

immoral 93 

illegal 93 

Iron, duty on ....... 37 

Issue, bank of . ...... 52 

Labor 3 

division of 9 

kinds of 121 

associations no 

managers of no 

failures of 113 

commission 125 

difficulties 124 

Legal tenders 75 

Loans 7^ 

Location, influence on capital . 21 

element of rent 92 

Lumber, duty on 2>7 

Luxuries, taxation of , , . 32, 33 



INDEX. 



143 



Machinery 16 

Maker of note 85 

Markets 25 

Measure 42, 43 

Merchant 26 

Money 2 

substances used for ... 42 

essential qualities of • . . 43 

gold and silver as .... 44 

coinage of 45 

Motive power 13 

of domestic animals ... 13 

of water 14 

of steam 15 

of electricity 15 

Mule 13 

Ox 13 

Payee 85 

Political economy i 

Politics I 

Price 3 

Productiveness 91 

Profit 102 

distinguished from what . 1 02 

gross and net 103 

of corporations . . . .104 

amount of 104 

distribution of 106 

Promissory note 84 

Protection 34 

modified theory of ... 39 

Redemption of bank notes . 76 

Rent 89 

Retailer 26 

Ricardo 90 

Savings Banks. See Banks. 

Seigniorage 51 

Shoemaker 11 



Silver as a standard 48 

in Nevada 49 

Soil, nature of 21 

Specie 83 

Statements of banks . . . . Jj 

Steam as a motive power . . 15 

Sugar, duty on 38 

Tailor 10 

Tariff 26 

for revenue 32 

Taxation necessary 32 

reason for 96 

of persons 97 

of property 98 

direct 98 

of wealth 99 

of capital 99 

of income 99 

indirect xoo 

during civil war . . . .101 

Taxes of banks Tj 

Tools 17 

Trade 24 

Traders 25 

Treasury notes 7^, 83 

Utility 2 

Value 2 

Wages 119 

Water 2 

as a motive power ... 14 

Wealth, of savages 5 

of shepherds 6 

. of farmers 8 

Wholesale 26 

Wind as a motive power ... 14 

Worth 2 

Yardstick 4'3 



t r 



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